SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended Commission File
DECEMBER 31, 1998 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
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(Exact name of registrant as specified in its charter)
Florida 59-2260678
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart, FL 34994
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(Address of principal executive offices) (Zip code)
(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
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 12, 1999:
CLASS A COMMON STOCK, $.10 par value - $123,411,222 based upon the closing sale
price on February 12, 1999, using beneficial ownership stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934, to exclude voting
stock owned by directors and certain executive officers, some of whom may not be
held to be affiliates upon judicial determination.
CLASS B COMMON STOCK, $.10 par value - $10,136,151 based upon the closing sale
price on February 12, 1999, of the Class A Common Stock, $.10 par value, into
which each share of Class B Common Stock, $.10 par value, is immediately
convertible on a one-for-one basis, using beneficial ownership stock rules
adopted pursuant to Section 13 of the Securities Exchange Act of 1934, to
exclude voting stock owned by directors and certain executive officers, some of
whom may not be held to be affiliates upon judicial determination.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of February 12, 1999:
Class A Common Stock, $.10 Par Value - 4,570,786 shares
Class B Common Stock, $.10 Par Value - 375,413 shares
<PAGE>
Documents Incorporated by Reference:
1. Portions of the registrant's 1999 Proxy Statement for the Annual Meeting
of Shareholders to be held April 22, 1999 ("1999 Proxy Statement") are
incorporated by reference into Part III.
<PAGE>
FORM 10-K CROSS-REFERENCE INDEX
Page of
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Form Annual
10-K Report
Part I
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Item 1. Business 1-16 --
Item 2. Properties 16-20 --
Item 3. Legal Proceedings 20 --
Item 4. Submission of Matters to a
Vote of Security-Holders 20 --
Part II
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Item 5. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters 21-22 31
Item 6. Selected Financial Data 23 4
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 23 18-30
Item 7A. Market Risk 23 27
Item 8. Financial Statements and 331-33
Supplementary Data & 35-49
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 23 --
Page of
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Form
10-K Proxy
Part III
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Item 10. Directors and Executive Officers 24 2-8
of the Registrant
Item 11. Executive Compensation 24 6-15
Item 12. Security Ownership of Certain
Beneficial Owners and Management 24 2-7,16
Item 13. Certain Relationships and Related 24 15-16
Transactions
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Page of
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Form Annual
10-K Report
Part IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
(a)(1) List of All Financial Statements 25
Consolidated Balance Sheets as
of December 31, 1998 and 1997 -- 37
Consolidated Statements of Income
for the years ended December 31,
1998, 1997 and 1996 -- 36
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1998, 1997 and 1996 -- 39
Consolidated Statements of Cash Flows
for the years ended December 31,
1998, 1997, and 1996 -- 38,47
Notes to Consolidated Financial
Statements -- 40-49
Report of Independent Certified
Public Accountants -- 35
(a)(2) List of Financial Statement Schedules 25 --
(a)(3) List of Exhibits 25-27 --
(b) Reports on Form 8-K 27 --
(c) Exhibits 27 --
(d) Financial Statement Schedules 27 --
<PAGE>
SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made herein under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere are
forward-looking statements for purposes of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"),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 ("Seacoast" or the
"Company") to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
forward looking statements include statements using the words such as "may",
"will", "anticipate", "should", "would", "believe", "contemplate", "expect",
"estimate", "continue", "may", "intend" or other similar words and expressions
of the future. Our actual results may differ significantly from the results we
discuss in these forward looking statements.
These forward looking statements involve risks and uncertainties and may not be
realized due to a variety of factors, including, without limitation: the effects
of future economic conditions; governmental monetary and fiscal policies, as
well as legislative and regulatory changes; the risks of changes in interest
rates on the level and composition of deposits, loan demand, and the values of
loan collateral, securities, and interest sensitive assets and liabilities;
interest rate risks; the effects of competition from other commercial banks,
thrifts, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market and other mutual
funds and other financial institutions operating in the Company's market area
and elsewhere, including institutions operating regionally, nationally and
internationally, together with such competitors offering banking products and
services by mail, telephone, 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.
Part I
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Item 1. Business
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General
Seacoast is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("BHC Act"). Seacoast was incorporated
under the laws of the State of Florida on January 24, 1983, by the
management of its principal subsidiary, First National Bank and Trust
Company of the Treasure Coast (the "Bank") for the purpose of becoming a
holding company for the Bank. On December 30, 1983, Seacoast acquired all
of the outstanding shares of the common stock of the Bank in exchange for
810,000 shares of its $.10 par value Class A common stock ("Class A Common
Stock") and 810,000 shares of its $.10 par value Class B common stock
("Class B Common Stock").
The Bank commenced operations in 1933 under the name "Citizens Bank of
Stuart" pursuant to a charter originally granted by the State of Florida in
1926. The Bank converted to a national banking association on August 29,
1958.
Through the Bank and its broker-dealer subsidiary, Seacoast offers a full
array of deposit accounts and retail banking services, engages in consumer
and commercial lending and provides a wide variety of trust and asset
management services, as well as securities and annuity products. Seacoast's
primary service area is the "Treasure Coast", which, as defined by
Seacoast, consists of the counties of Martin, St. Lucie and Indian River on
Florida's southeastern coast. The Bank operates banking offices in the
following cities: five in Stuart, two in Palm City, one in Jensen Beach,
two on Hutchinson Island, one in Hobe Sound, five in Vero Beach, two in
Sebastian, five in Port St. Lucie, and one in Ft. Pierce.
Most of the banking offices have one or more Automatic Teller Machines
(ATM) which provide customers with 24-hour access to their deposit
accounts. Seacoast is a member of two state-wide funds transfer systems
known as the "HONOR System" and the "Presto System", which permit banking
customers access to their accounts at over 35,000 locations in twenty-one
states in the Southeast. The HONOR System also permits the Bank's customers
access to their accounts via other systems outside the State of Florida.
Customers can also use the Bank's "MoneyPhone" system to access information
on their loan or deposit account balances, to transfer funds between linked
accounts, to make loan payments, and to verify deposits or checks that may
have cleared. This service is accessible by phone 24 hours a day, seven
days a week.
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In addition, customers may access information via the Bank's Telephone
Banking Center ("TBC"). From 7 A.M. to 7 P.M., Monday through Friday,
servicing personnel in the TBC are available to open accounts, take
applications for certain types of loans, resolve account problems and offer
information on other bank products and services to existing and potential
customers. The Company recently began offering PC banking for personal
computers.
Seacoast has three indirect subsidiaries. FNB Brokerage Services, Inc.
("FNB Brokerage") provides brokerage services. South Branch Building, Inc.
is a general partner in a partnership which constructed a branch facility.
Big O RV Resort, Inc. was formed to own and operate certain properties
acquired through foreclosure, but is currently inactive. The operations of
these subsidiaries contribute less than 10% of the consolidated assets and
revenues of Seacoast.
As a bank holding company, Seacoast is a legal entity separate and distinct
from its subsidiaries. Seacoast coordinates the financial resources of the
consolidated enterprise and maintains financial, operational and
administrative systems that allow centralized evaluation of subsidiary
operations and coordination of selected policies and activities. Seacoast's
operating revenues and net income are derived primarily from its
subsidiaries through dividends, fees for services performed and interest on
advances and loans. See "Supervision and Regulation".
As of December 31, 1998, Seacoast and its subsidiaries employed 404
full-time equivalent employees.
Expansion of Business
Seacoast has expanded its products and services to meet the changing needs
of the various segments of its market and it expects to continue this
strategy. Prior to 1991, Seacoast had expanded geographically primarily
through the addition of branches, including the acquisition of a thrift
branch in St. Lucie County.
More recently, Seacoast has from time to time considered acquisitions of
other depository institutions or corporations engaged in bank-related
activities. On September 20, 1991, the Bank acquired from the Resolution
Trust Corporation (the "RTC") 10 branches and approximately $110 million of
deposits of a failed thrift, American Pioneer Federal Savings Bank
("American Pioneer"), for a deposit premium of $752,000 (of which $146,000
remains outstanding as an intangible asset at December 31, 1998). Following
the acquisition, the Bank temporarily rented all of the branch facilities
from the RTC at commercially reasonable rates to preserve existing customer
relationships and to facilitate their transfer to the Bank. On October 18,
1991, the Bank ceased renting the branch office facilities that it did not
intend to acquire in order to avoid duplication of existing facilities.
After negotiation, definitive agreements with the RTC were executed for the
purchase of five branch facilities. See "Item 2. Properties".
On April 14, 1995, the Bank acquired approximately $46 million in loans and
$62 million in deposits by purchasing American Bank Capital Corporation of
Florida ("American Bank") and it's subsidiary, American Bank of Martin
County. The transaction was treated as a purchase for accounting purposes
with the Bank paying $9.3 million in cash. At December 31, 1998, intangible
assets resulting from this acquisition include goodwill of $3,282,000 and
core deposit premium of $1,158,000. Following the acquisition, the Bank
closed its existing East Ocean office location to move to a more attractive
location acquired from American Bank, and continued to operate an office
location owned by American Bank in southern Martin County. See "Item 2.
Properties".
On May 30, 1997, Seacoast acquired Port St. Lucie National Bank Holding
Corp. ("PSHC") pursuant to which Seacoast issued and exchanged Class A
Common Stock for all of the outstanding shares of PSHC common stock,
warrants and options to purchase common stock of PSHC. PSHC merged with and
into Seacoast and PSHC's subsidiary bank, Port St. Lucie National Bank,
merged with and into the Bank. The transaction, which had a value of
approximately $26 million, was accounted for under the pooling-of-interests
method for business combinations. As of May 30, 1997, PSHC had total
consolidated assets of approximately $130 million, loans of $94 million and
deposits of $116 million.
Florida law permits state-wide branching and Seacoast has expanded, and
anticipates future expansion in its markets, by opening additional offices
and facilities. New banking facilities were opened in November 1994 in St.
Lucie West, a new community west of Port St. Lucie, and in May 1996 in a
WalMart superstore in Sebastian in northern Indian River County. In January
1997, Seacoast opened a branch in Nettles Island, a predominately modular
home community on Hutchinson Island in southern St. Lucie County. In May,
June and July 1997, and in March 1998, four additional branch offices were
opened in Indian River County. See "Item 2. Properties".
<PAGE>
Competition
Seacoast and its subsidiaries operate in the highly competitive markets of
Martin, St. Lucie and Indian River Counties in southeastern Florida. The
Bank not only competes with other banks in its markets, but it also
competes with various other types of financial institutions for deposits,
certain commercial, fiduciary and investment services and various types of
loans and certain other financial services. The Bank also competes for
interest-bearing funds with a number of other financial intermediaries and
investment alternatives, including mutual funds, brokerage and insurance
firms, governmental and corporate bonds, and other securities.
Seacoast and its subsidiaries compete not only with financial institutions
based in the State of Florida, but also with a number of large out-of-state
and foreign banks, bank holding companies and other financial institutions
which have an established market presence in the State of Florida, or which
offer products by mail, telephone or over the Internet. Many of Seacoast's
competitors are engaged in local, regional, national and international
operations and have greater assets, personnel and other resources than
Seacoast. Some of these competitors are subject to less regulation and/or
more favorable tax treatment than Seacoast.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under federal
and state law. This discussion is qualified in its entirety by reference to
the particular statutory and regulatory provisions referred to below and is
not intended to be an exhaustive description of the status or regulations
applicable to the Company's and the Bank's business. Supervision,
regulation, and examination of the Company and the Bank and their
respective subsidiaries by the bank regulatory agencies are intended
primarily for the protection of depositors rather than holders of Company
capital stock. Any change in applicable law or regulation may have a
material effect on the Company's business.
Bank Holding Company Regulation
The Company, as a bank holding company, is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve") under the BHC Act. The Company is required to file with
the Federal Reserve periodic reports and such other information as the
Federal Reserve may request. The Federal Reserve examines the Company, and
may examine the Company's Subsidiaries.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially
all the assets of any bank, or for a merger or consolidation of a bank
holding company with another bank holding company. With certain exceptions,
the BHC Act prohibits a bank holding company from acquiring direct or
indirect ownership or control of voting shares of any company which is not
a bank or bank holding company and from engaging directly or indirectly in
any activity other than banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding
company, may, however, engage in or acquire an interest in a company that
engages in activities which the Federal Reserve has determined by
regulation or order to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
<PAGE>
The Company is a legal entity separate and distinct from the Bank and its
other subsidiaries. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company or its non-bank
subsidiaries. The Company and the Bank are subject to Section 23A of the
Federal Reserve Act. Section 23A defines "covered transactions", which
include extensions of credit, and limits a bank's covered transactions with
any affiliate to 10% of such bank's capital and surplus. All covered and
exempt transactions between a bank and its affiliates must be on terms and
conditions consistent with safe and sound banking practices, and banks and
their subsidiaries are prohibited from purchasing low-quality assets from
the bank's affiliates. Finally, Section 23Arequires that all of a bank's
extensions of credit to an affiliate be appropriately secured by acceptable
collateral, generally United States government or agency securities. The
Company and the Bank also are subject to Section 23B of the Federal Reserve
Act, which generally limits covered and other transactions among affiliates
to terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the bank or its
subsidiary as prevailing at the time for transactions with unaffiliated
companies.
The BHC Act, as amended by the interstate banking provisions of the
Reigle-Neal Interstate Banking and Branch Efficiency Act of 1994
("Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of
banks by bank holding companies, such that Seacoast and any other bank
holding company located in Florida may now acquire a bank located in any
other state, and any bank holding company located outside Florida may
lawfully acquire any bank based in another state, regardless of state law
to the contrary, in either case subject to certain deposit- percentage, age
of bank charter requirements, and other restrictions. The Interstate
Banking Act also generally provides that, after June 1, 1997, national and
state-chartered banks may branch interstate through acquisitions of banks
in other states. By adopting legislation prior to that date, a state has
the ability to either "opt in" and accelerate the date after which
interstate branching is permissible or "opt out" and prohibit interstate
branching altogether. Florida has an Interstate Branching Act ("the Florida
Branching Act"), which permits interstate branching through merger
transactions under the Interstate Banking Act. Under the Florida Branching
Act, with the prior approval of the Florida Department of Banking and
Finance, a Florida bank may establish, maintain and operate one or more
branches in a state other than the State of Florida pursuant to a merger
transaction in which the Florida bank is the resulting bank. In addition,
the Florida Branching Act provides that one or more Florida banks may enter
into a merger transaction with one or more out-of-state banks, and an
out-of-state bank resulting from such transaction may maintain and operate
the branches of the Florida bank that participated in such merger. An
out-of-state bank, however, is not permitted to acquire a Florida bank in a
merger transaction unless the Florida bank has been in existence and
continuously operated for more than three years.
Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank
may not otherwise be warranted. In addition, under the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where
a bank holding company has more than one bank or thrift subsidiary, each of
the bank holding company's subsidiary depository institutions are
responsible for any losses to the Federal Deposit Insurance Corporation
("FDIC") as a result of an affiliated depository institution's failure. As
a result, a bank holding company may be required to loan money to its
subsidiaries in the form of capital notes or other instruments which
qualify as capital under regulatory rules. However, any loans from the
holding company to such subsidiary banks likely will be unsecured and
subordinated to such bank's depositors and perhaps to other creditors of
the bank.
The Federal Reserve has amended its Regulation Y implementing certain
provisions of The Economic Growth and Regulatory Paperwork Reduction Act of
1996 ("EGRPRA"). Among other things, these amendments to Federal Reserve
Regulation Y reduced the notice and application requirements applicable to
bank and nonbank acquisitions and de novo expansion by well-capitalized and
well-managed bank holding companies; expanded the list of nonbanking
activities permitted under Regulation Y; reduced certain limitations on
previously permitted activities; and amended Federal Reserve anti-tying
restrictions to allow banks greater flexibility to package products and
services with their affiliates.
<PAGE>
Bank and Bank Subsidiary Regulation Generally
The Bank is subject to supervision, regulation, and examination by the
Office of the Comptroller of the Currency (the "OCC") which monitors all
areas of the operations of the Bank, including reserves, loans, mortgages,
issuances of securities, payment of dividends, establishment of branches,
capital adequacy, and compliance with laws. The Bank is a member of the
FDIC and, as such, its deposits are insured by the FDIC to the maximum
extent provided by law. See "FDIC Insurance Assessments".
Under present Florida law, the Bank may establish and operate branches
throughout the State of Florida, subject to the maintenance of adequate
capital for each branch and the receipt of OCC approval.
The OCC has adopted a series of revisions to its regulations, including
expanding the powers exercisable by operations subsidiaries. These changes
also modernize and streamline corporate governance, investment and
fiduciary powers.
In December, 1996, the OCC adopted the Federal Financial Institutions
Examination Council's ("FFIEC") updated statement of policy entitled
"Uniform Financial Institutions Rating System" ("UFIRS"), effective January
1, 1997. UFIRS is an internal rating system used by the federal and state
regulators for assessing the soundness of financial institutions on a
uniform basis and for identifying those institutions requiring special
supervisory attention. Under the previous UFIRS, each financial institution
was assigned a confidential composite rating based on an evaluation and
rating of five essential components of an institution's financial condition
and operations including Capital adequacy, Asset quality, Management,
Earnings, and Liquidity. The major changes include an increased emphasis on
the quality of risk management practices and the addition of a sixth
component for Sensitivity to market risk. For most institutions, the FFIEC
has indicated that market risk primarily reflects exposures to changes in
interest rates. When regulators evaluate this component, consideration is
expected to be given to: management's ability to identify, measure,
monitor, and control market risk; the institution's size; the nature and
complexity of its activities and its risk profile, and the adequacy of its
capital and earnings in relation to its level of market risk exposure.
Market risk is rated based upon, but not limited to, an assessment of the
sensitivity of the financial institution's earnings or the economic value
of its capital to adverse changes in interest rates, foreign exchange
rates, commodity prices, or equity prices; management's ability to
identify, measure, monitor and control exposure to market risk; and the
nature and complexity of interest rate risk exposure arising from
nontrading positions.
FNB Brokerage, a Bank subsidiary, is registered as a securities
broker-dealer under the Exchange Act and is regulated by the Securities and
Exchange Commission ("SEC"). As a member of the National Association of
Securities Dealers, Inc., it also is subject to examination and supervision
of its operations, personnel and accounts by NASD Regulation, Inc., a NASD
subsidiary. FNB Brokerage is a separate and distinct entity from the Bank,
and must maintain adequate capital under the SEC's net capital rule, Rule
153(c)-1 under the Securities Exchange Act of 1934. The net capital rule
limits FNB Brokerage's ability to reduce capital by payment of dividends or
other distributions to the Bank.
<PAGE>
Community Reinvestment Act
The Company and the Bank are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA") and the federal banking
agencies' regulations thereunder. Under the CRA, all banks and thrifts have
a continuing and affirmative obligation, consistent with their safe and
sound operation to help meet the credit needs for their entire communities,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor
does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's
primary federal regulator, in connection with its examination of the
institution, to assess the institution's record of assessing and meeting
the credit needs of the community served by that institution, including
low- and moderate-income neighborhoods. The regulatory agency's assessment
of the institution's record is made available to the public. Further, such
assessment is required of any institution which has applied to: (i) charter
a national bank; (ii) obtain deposit insurance coverage for a
newly-chartered institution; (iii) establish a new branch office that
accepts deposits; (iv) relocate an office; or (v) merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally
regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be
the basis for denying the application. A less than satisfactory CRA rating
will slow, if not preclude expansion of banking activities.
Current CRA regulations rate institutions based on their actual performance
in meeting community credit needs. CRA performance is evaluated by the OCC,
the Bank's primary federal regulator using a lending test, an investment
test, and a service test. The OCC also will consider: (i) demographic data
about the community; (ii) the institution's capacity and constraints; (iii)
the institution's product offerings and business strategy; and (iv) data on
the prior performance of the institution and similarly-situated lenders.
The lending test -- the most important of the three tests for institutions
other than wholesale and limited purpose (e.g., credit card) banks -- will
evaluate an institution's lending activities as measured by its home
mortgage loans, small business and farm loans, community development loans,
and, at the option of the institution, its consumer loans. Each of these
lending categories will be weighed to reflect its relative importance to
the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's
service area and the opportunities available for this type of lending.
Assessment criteria for the lending test include: (i) geographic
distribution of the institution's lending; (ii) distribution of the
institution's home mortgage and consumer loans among different economic
segments of the community; (iii) the number and amount of small business
and small farm loans made by the institution; (iv) the number and amount of
community development loans outstanding; and (v) the institution's use of
innovative or flexible lending practices to meet the needs of
low-to-moderate income individuals and neighborhoods. At the election of an
institution, or if particular circumstances so warrant, the OCC will take
into account in making their assessments lending by the institution's
affiliates as well as community development loans made by the lending
consortia and other lenders in which the institution has invested. All
Depository institutions are required to report data on their small business
and small farm loans as well as their home mortgage loans, which are
currently required to be reported under the Home Mortgage Disclosure Act.
The investment test focuses on qualified investments within a bank's
service area that (i) benefit low-to-moderate income individuals and small
businesses or farms; (ii) address affordable housing needs; or (iii)
involve donations of branch offices to minority or women's depository
institutions. The institution's performance under the investment test
depends upon the dollar amount of the institution's qualified investments,
its use of innovative or complex techniques to support community
development initiatives, and its responsiveness to credit and community
development needs.
The service test evaluates an institution's systems for delivering retail
banking services, and considers such factors as: (i) the geographic
distribution of the institution's branch offices and ATMs; (ii) the
institution's record of opening and closing branch offices and ATMs; and
(iii) the availability of alternative product delivery systems such as home
banking and loan production offices in low-to-moderate income areas. The
OCC also will consider an institution's community development service as
part of the service test.
<PAGE>
Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. Seacoast and the Bank are
ineligible for these streamlined criteria. In addition, subject to prior
approval by its principal federal regulator, financial institutions have
the option of having their CRA performance evaluated based on a strategic
plan of up to five years in length that it develops in cooperation with
local community groups. The Bank has no such plan.
The CRA regulations provide that an institution will receive a CRA rating
for each test of: "outstanding," "high satisfactory," "low satisfactory,"
"needs to improve," or "substantial non-compliance." An institution will
receive a certain number of points for its rating on each test, and the
points are combined to produce an overall composite rating of either
"outstanding," "satisfactory," "needs to improve," or "substantial
non-compliance." Under the agencies' rating guidelines, an institution that
receives an "outstanding" rating on the lending test will receive an
overall rating of at least "satisfactory", and no institution can receive
an overall rating of "satisfactory" unless it receives a rating of at least
"low satisfactory" on its lending test. In addition, evidence of
discriminatory or other illegal credit practices would adversely affect an
institution's overall rating. Under the new regulations, an institution's
CRA rating would continue to be taken into account by its primary federal
regulator in considering various types of applications. As a result of the
Bank's most recent CRA examination in September 1997, the Bank received a
"satisfactory" CRA rating.
The Bank is also subject to, among other things, the provisions of the
Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the
"FHA"), both of which prohibit discrimination based on race or color,
religion, national origin, sex, and familial status in any aspect of a
consumer or commercial credit or residential real estate transaction. Based
on recently heightened concerns that some prospective home buyers and other
borrowers may be experiencing discriminatory treatment in their efforts to
obtain loans, the Department of Housing and Urban Development, the
Department of Justice (the "DOJ"), and the federal banking agencies in
April 1994 issued an Interagency Policy Statement on Discrimination in
Lending in order to provide guidance to financial institutions in
determining whether discrimination exists, how the agencies will respond to
lending discrimination, and what steps lenders might take to prevent
discriminatory lending practices. The DOJ has also increased its efforts to
prosecute what it regards as violations of the ECOA and FHA.
<PAGE>
Payment of Dividends
The Company is a legal entity separate and distinct from its banking and
other subsidiaries. The prior approval of the OCC is required if the total
of all dividends declared by a national bank (such as the Bank) in any
calendar year will exceed the sum of such bank's net profits for the year
and its retained net profits for the preceding two calendar years, less any
required transfers to surplus. Federal law also prohibits any national bank
from paying dividends that would be greater than such bank's undivided
profits after deducting statutory bad debt in excess of such bank's
allowance for loan losses.
In addition, the Company and the Bank are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition
of a national or state member bank or a bank holding company that the
payment of dividends would be an unsafe or unsound practice and to prohibit
payment thereof. The OCC and the Federal Reserve have indicated that paying
dividends that deplete a national or state member bank's capital base to an
inadequate level would be an unsound and unsafe banking practice. The OCC
and the Federal Reserve have each indicated that financial depository
institutions should generally pay dividends only out of current operating
earnings.
Capital
The Federal Reserve and the OCC have risk-based capital guidelines for bank
holding companies and national banks, respectively. These guidelines
require a minimum ratio of capital to risk-weighted assets (including
certain off-balance- sheet activities, such as standby letters of credit)
of 8%. At least half of the total capital must consist of common equity,
retained earnings and a limited amount of qualifying preferred stock, less
goodwill and certain core deposit intangibles ("Tier 1 capital"). The
remainder may consist of non-qualifying preferred stock, qualifying
subordinated, perpetual, and/or mandatory convertible debt, term
subordinated debt and intermediate term preferred stock and up to 45% of
pretax unrealized holding gains on available for sale equity securities
with readily determinable market values that are prudently valued, and a
limited amount of any loan loss allowance and up to 45% of pretax ("Tier 2
capital" and, together with Tier 1 capital, "Total Capital").
In addition, the Federal Reserve and the OCC have established minimum
leverage ratio guidelines for bank holding companies and national banks,
which provide for a minimum leverage ratio of Tier 1 capital to adjusted
average quarterly assets ("leverage ratio") equal to 3%, plus an additional
cushion of 1.0% - 2.0%, if the institution has less than the highest
regulatory rating. The guidelines also provide that institutions
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Higher capital may be required in individual cases, and depending upon a
bank holding company's risk profile. All bank holding companies and banks
are expected to hold capital commensurate with the level and nature of
their risks including the volume and severity of their problem loans.
Lastly, the Federal Reserve's guidelines indicate that the Federal Reserve
will continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The
Federal Reserve and OCC have not advised the Company or the Bank of any
specific minimum leverage ratio or tangible Tier 1 leverage ratio
applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to
take "prompt corrective action" regarding depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital
tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", and "critically undercapitalized". A
depository institution's capital tier will depend upon how its capital
levels compare to various relevant capital measures and certain other
factors, as established by regulation.
<PAGE>
All of the federal banking agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the Total Capital ratio, Tier 1 capital ratio, and the
leverage ratio. Under the regulations, a national bank will be (i) well
capitalized if it has a Total Capital ratio of 10% or greater, a Tier 1
capital ratio of 6% or greater, and is not subject to any written
agreement, order, capital directive, or prompt corrective action directive
by a federal bank regulatory agency to meet and maintain a specific capital
level for any capital measure, (ii) adequately capitalized if it has a
Total Capital ratio of 8% or greater, a Tier 1 capital ratio of 4% or
greater, and a leverage ratio of 4% or greater (3% in certain
circumstances), (iii) undercapitalized if it has a Total Capital ratio of
less than 8%, a Tier 1 capital ratio of less than 4% (3% in certain
circumstances), or (iv) critically undercapitalized if its tangible equity
is equal to or less than 2% of average quarterly tangible assets.
As of December 31, 1998, the consolidated capital ratios of the Company and
the Bank were as follows:
Regulatory
Minimum Company Bank
------- ------- ----
Tier 1 capital ratio 4.0% 11.1% 11.0%
Total capital ratio 8.0% 12.0% 12.0%
Leverage ratio 3.0-5.0% 7.1% 7.1%
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee
to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit a capital restoration plan
for approval. For a capital restoration plan to be acceptable, the
depository institution's parent holding company must guarantee that the
institution comply with such capital restoration plan. The aggregate
liability of the parent holding company is limited to the lesser of 5% of
the depository institution's total assets at the time it became
undercapitalized and the amount necessary to bring the institution into
compliance with applicable capital standards. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized. If the controlling holding company fails to fulfill its
obligations under FDICIA and files (or has filed against it) a petition
under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the
bank holding company. Significantly undercapitalized depository
institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets, and cessation of receipt
of deposits from correspondent banks. Critically undercapitalized
institutions are subject to the appointment of a receiver or conservator.
Because the Company and the Bank exceed applicable capital requirements,
the respective managements of the Company and the Bank do not believe that
the provisions of FDICIA have had any material impact on the Company and
the Bank or their respective operations.
FDICIA
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth compensation, a maximum ratio of classified assets
to capital, minimum earnings sufficient to absorb losses, a minimum ratio
of market value to book value for publicly traded shares, and such other
standards as the federal regulatory agencies deem appropriate.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Bank, including new reporting
requirements, regulatory standards for real estate lending, "truth in
savings" provisions, the requirement that a depository institution give 90
days prior notice to customers and regulatory authorities before closing
any branch, and a prohibition on the acceptance or renewal of brokered
deposits by depository institutions that are not well capitalized or are
adequately capitalized and have not received a waiver from the FDIC. Under
regulations relating to brokered deposits, the Bank is well capitalized and
not restricted.
<PAGE>
Enforcement Policies and Actions
The Federal Reserve and the OCC monitor compliance with laws and
regulations. Violations of laws and regulations, or other unsafe and
unsound practices, may result in these agencies imposing fines or
penalties, cease and desist orders, or taking other enforcement actions.
Under certain circumstances, these agencies may enforce these remedies
directly against officers, directors, employees and others participating in
the affairs of a bank or bank holding company.
Depositor Preference
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation
against an insured depository institution would be afforded a priority over
other general unsecured claims against such an institution in the
"liquidation or other resolution" of such an institution by any receiver.
Fiscal and Monetary Policy
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits
and its other borrowings, and the interest received by a bank on its loans
and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of Seacoast and the Bank are
subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve. The Federal
Reserve regulates the supply of money through various means, including open
market dealings in United States government securities, the discount rate
at which banks may borrow from the Federal Reserve, and the reserve
requirements on deposits. The nature and timing of any changes in such
policies and their effect on Seacoast and its subsidiaries cannot be
predicted.
FDIC Insurance Assessments
The Bank is subject to FDIC deposit insurance assessments. The Bank's
deposits are primarily insured by the FDIC's Bank Insurance Fund ("BIF").
The Bank is also a member of the Savings Association Insurance Fund
("SAIF") to the extent that the Bank holds deposits acquired in 1991 from
the RTC. The FDIC assesses deposits under a risk-based premium schedule.
Each financial institution is assigned to one of three capital groups,
"well capitalized," "adequately capitalized" or "undercapitalized," and
further assigned to one of three subgroups within a capital group, on the
basis of supervisory evaluations by the institution's primary federal and,
if applicable, state regulators and other information relevant to the
institution's financial condition and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution, therefore, depends in part upon the risk assessment
classification so assigned to the institution by the FDIC. In the third
quarter of 1996, a special one-time SAIF assessment of $0.657 per $100 of
deposits was levied, resulting in a $500,000 charge to the Bank. During the
years ended December 31, 1998, and 1997, the Bank paid no deposit premiums,
except for the FICO assessments of $135,000 and $136,000, respectively.
The FDIC's Board of Directors has continued the 1998 BIF and SAIF
assessment schedule of zero to 27 basis points per annum for the first
semiannual period of 1999. EGRPRA recapitalized the FDIC's SAIF Fund to
bring it into parity with BIF. As part of this recapitalization, The
Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized FICO to
levy assessments through the earlier of December 31, 1999 or the merger of
BIF and SAIF, on BIF-assessable deposits at a rate equal to one-fifth of
the FICO assessment rate applied to SAIF deposits. The FICO assessments are
set quarterly and ranged from 1.256 and 6.28 basis points for BIF and SAIF,
respectively, in the first quarter of 1998, to 1.164 and 5.82 basis points
in the last quarter of 1998. These assessment rates are 1.22 basis points
for BIF, and 6.10 basis points for SAIF, in the first quarter of 1999.
<PAGE>
Community Development Act
The Community Development Act has several titles. Title I provides for the
establishment of community development financial institutions to provide
equity investments, loans and development services to financially
underserved communities. A portion of this Title also contains various
provisions regarding reverse mortgages, consumer protections for qualifying
mortgages and hearings for home equity lending, among other things. Title
II provides for small business loan securitization and securitizations of
other loans, including authorizing a study on the impact of additional
securities based on pooled obligations. Small business capital enhancement
is also provided. Title III of the Act provides for paperwork reduction and
regulatory improvement, including certain examination and call report
issues, as well as changes in certain consumer compliance requirements,
certain audit requirements and real estate appraisals, and simplification
and expediting processing of bank holding company applications, merger
applications and securities filings, among other things. It also provides
for commercial mortgage-related securities to be added to the definition of
a "mortgage-related security" in the Exchange Act. This will permit
commercial mortgages to be pooled and securitized, and permit investment in
such instruments without limitation by insured depository institutions. It
also pre-empts state legal investment and blue sky laws related to
qualifying commercial mortgage securities. Title IV deals with money
laundering and currency transaction reports, and Title V reforms the
national flood insurance laws and requirements. The nature, timing, and
effect upon the Company of any changes resulting from the Community
Development Act cannot be predicted.
Legislative and Regulatory Changes
Various changes have been proposed with respect to restructuring and
changing the regulation of the financial services industry. FIRREA required
a study of the deposit insurance system. On February 5, 1991, the
Department of the Treasury released "Modernizing the Financial System;
Recommendations for Safer, More Competitive Banks". Among other matters,
this study analyzed and made recommendations regarding reduced bank
competitiveness and financial strength, overextension of deposit insurance,
the fragmented regulatory system and the under- capitalized deposit
insurance fund. It proposed restoring competitiveness by allowing banking
organizations to participate in a full range of financial services outside
of insured commercial banks. Deposit insurance coverage would be narrowed
to promote market discipline.
The Interstate Banking Act also directed the Secretary of the Treasury to
take a broad look at the strengths and weaknesses of the United States'
financial services system. In June 1997, the Treasury Department proposed
legislation to eliminate what it deemed outmoded barriers to competition
among financial services providers. On November 17, 1997, the United States
Department of the Treasury released its study "American Finance for the
21st Century" which considered changes in the financial services industry
during the next 10 years and beyond and reviewed the adequacy of existing
statutes and legislation.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and
bank and bank holding company powers are being considered by the executive
branch of the Federal government, Congress and various state governments,
including Florida. Among other items under consideration are the possible
combination of the BIF and SAIF, changes in or repeal of the Glass-Steagall
Act which separates commercial banking from investment banking, and changes
in the BHC Act to broaden the powers of "financial services" companies to
own and control depository institutions and engage in activities not
closely related to banking. The FDIC is considering possibly adding risk
measures in determining deposit insurance assessments. Certain of these
proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. It cannot be predicted whether any of
these proposals will be adopted, and, if adopted, how these proposals will
affect the Company and the Bank. In a case presented to the United States
Supreme Court in 1996, the Court permitted bank affiliates to conduct
insurance agency activities in the State of Florida.
New Accounting Pronouncements
In June 1997, the FASB issued Statements of Financial Accounting Standards
Number 130, Comprehensive Income ("SFAS 130"), and Number 131, Disclosures
about Segments of an Enterprise ("SFAS 131"). The Company adopted the
applicable standards and disclosures of these statements in 1998. SFAS 130
established standards for reporting comprehensive income and SFAS 131
established standards for reporting information about operating segments.
The FASB has also issued Statement of Financial Accounting Standard Number
133, Accounting for Derivative Instruments and for Hedging Activities (SFAS
133). The Company is required to adopt this statement in the future.
Management does not believe the adoption of SFAS 133 will have a
significant impact on the Company's financial statements or related
disclosures.
<PAGE>
The Year 2000 Issue
Because computers frequently use only two digits to recognize years, on
January 1, 2000, many computer systems, as well as equipment that uses
embedded computer chips, may be unable to distinguish between 1900 and
2000. If not remediated, this problem could create system errors and
failures resulting in the disruption of normal business operations. Since
the Year 2000 is a leap year, there could also be business disruptions as a
result of the inability of many computer systems to recognize February 29,
2000.
In 1997 the Company established a project team to address these issues. The
team remains in place and continues to work on solving problems related to
the Year 2000. Personnel from the Company's business segments and the
project team are identifying, analyzing, correcting and testing components
of the Company's information technology ("IT"). Personnel are also taking
inventory of equipment that uses embedded computer chip (i.e.,
"non-information technology systems" or "Infrastructure") and scheduling
remediation or replacement of this Infrastructure, as necessary. Examples
of Infrastructure include ATMs, building security systems, fire alarm
systems, identification and access cards, date stamps and elevators.
The Company's Year 2000 efforts have been divided into phases for analysis,
remediation, testing, validation and implementation. In the analysis phase,
the Company identifies IT and Infrastructure that have Year 2000 issues and
determines the steps necessary to remediate these issues. In the
remediation phase, the Company replaces, modifies or retires IT or
Infrastructure, as necessary. During the testing phase, the Company
performs testing to ensure that the remediated IT and Infrastructure
accurately process and identify dates. In the validation phase, the Company
internally certifies the IT and Infrastructure that are Year 2000 compliant
and implements processes to ensure that the compliant IT and Infrastructure
will continue to identify and process dates accurately through the Year
2000 and thereafter.
As of year end, the analysis and remediation phase was substantially
complete, the testing phase was approximately 90% complete and validation
phase was approximately 25% complete. The Company expects to substantially
complete all phases by June 30, 1999, in accordance with guidelines
established by the Federal Financial Institutions Examination Council
(FFIEC).
The Company currently estimates the total cost of the Year 2000 project
will not exceed $750,000. A significant portion of the foregoing cost
constitutes a reallocation of existing internal systems technology
resources and, accordingly, is funded from normal operations.
Factors that may cause these costs to differ from estimates include
uncertainties relating to the Company's efforts to prepare its technology
systems non-information technology systems (IT) for the Year 2000, as well
as uncertainties relating to the ability of third parties with whom the
Company has business relationships to address the Year 2000 issue in a
timely and adequate manner. The Company is also exposed to the potential of
losses arising from adverse changes in market rates and prices which can
adversely impact the value of financial products, including securities,
loans, deposits, debt and derivative financial instruments, such as
futures, forwards, swaps, options and other financial instruments which
similar characteristics.
The Company has existing business continuity plans that address its
response to disruptions to business due to natural disasters, civil unrest,
utility outages or other occurrences. The Company is developing business
continuity plans specific to Year 2000 issues that are based on these
existing plans. The Company has made substantial progress on an inventory
and assessment of the existing business contingency plans. Supplements to
the existing plans to address Year 2000 issues are in various stages of
development and will include detailed plans to respond to these events. The
Company intends to complete these supplemental business continuity plans by
April 30, 1999. During the remainder of 1999, the business continuity plans
will be tested and validated with particular attention to event management
and communication processes.
<PAGE>
Likewise, the Company has reviewed contingency plans developed by its
outsourced core processing vendor, M&I, relating to business interruptions
that could impact the core processing system. While these plans appear
adequate and are intended to be refined further in early 1999, there can be
no assurance that such plans will adequately mitigate material impacts that
these interruptions could have on the Company. Moreover, while the Company
has undertaken substantial effort to monitor M&I's progress to remediate
and reduce its Year 2000 exposure, the Company is dependent upon M&I to
adequately manage its own resources to minimize that exposure.
Although the Company's remediation efforts are directed at reducing its
Year 2000 exposure, there can be no assurance that these efforts will fully
mitigate the effect of Year 2000 issues. In the event the Company fails to
identify or correct a material Year 2000 problem, there could be
disruptions in normal business operations, which could have a material
adverse effect on the Company's results of operations, liquidity or
financial condition. In addition, there can be no assurance that
significant domestic third parties will adequately address their Year 2000
issues. Further, there may be some such parties, such as governmental
agencies, utilities, telecommunication companies, financial services
vendors and other providers, where alternative arrangements or resources
are not available.
In addition to the foregoing, the Company is subject to credit risk to the
extent borrowers fail to adequately address Year 2000 issues, to fiduciary
risk to the extent fiduciary assets fail to adequately address Year 2000
issues, and to liquidity risk to the extent of deposit withdrawals and to
the extent its lenders are unable to provide the Company with funds due to
Year 2000 issues. Although it is not possible to quantify the potential
impact of these risks at this time, in future years, there may be increases
in problem loans, credit losses, losses in the fiduciary business and
liquidity problems, as well as the risk of litigation and potential losses
from litigation related to the foregoing.
In addition, see "The Year 2000 Issue" included in the shareholders annual
report on pages 22 and 23.
Statistical Information
Certain statistical information (as required by Guide 3) is included in
response to Item 7 of this Annual Report on Form 10- K. Certain statistical
information is included in response to Item 6 and Item 8 of this Annual
Report on Form 10-K.
Item 2. Properties
Seacoast and the Bank's main office occupy approximately 62,000 square feet
of a 68,000 square foot building in Stuart, Florida. The building, together
with an adjacent 10-lane drive-in banking facility and an additional 27,000
square foot office building, are situated on approximately eight acres of
land in the center of Stuart zoned for commercial use. The building and
land are owned by the Bank, which leases out portions of the building not
utilized by Seacoast and the Bank to unaffiliated parties.
Adjacent to the main office, the Bank leases approximately 21,400 square
feet of office space to house operational departments, primarily
information systems and retail support. The Bank owns its equipment which
is used for servicing bank deposits and loan accounts as well as on-line
banking services, providing tellers and other customer service personnel
with access to customers' records.
As of December 31, 1998, the net carrying value of branch offices
(excluding the main office) was approximately $9.4 million. Seacoast's
branch offices are described as follows:
Jensen Beach, opened in 1977, is a free-standing facility located in the
commercial district of a residential community contiguous to Stuart. The
1,920 square foot bank building and land are owned by the Bank.
Improvements include three drive-in teller lanes and one drive-up ATM as
well as a parking lot and landscaping.
<PAGE>
East Ocean Boulevard, opened at its original location in 1978, was a 2,400
square foot building leased by the Bank. The acquisition of American Bank
provided an opportunity for the Bank to move to a new location in April
1995. It is still located on the main thoroughfare between downtown Stuart
and Hutchinson Island's beach-front residential developments. The first
three floors of a four story office condominium were acquired in the
acquisition. The 2,300 square foot branch area on the first floor has been
remodeled and operates as a full service branch including five drive-in
lanes and a drive-up ATM. The remaining 2,300 square feet on the ground
floor was sold in June 1996, the third floor was sold in December 1995, and
the second floor in December 1998.
Cove Road, opened in late 1983, is conveniently located close to housing
developments in the residential areas south of Stuart known as Port Salerno
and Hobe Sound. South Branch Building, Inc., a subsidiary of the Bank, is a
general partner in a partnership which entered into a long term land lease
for approximately four acres of property on which it constructed a 7,500
square foot building. The Bank leases the building and utilizes 3,450
square feet of the available space. The balance is sublet by the Bank to
other business tenants. The Bank has improved its premises with three
drive-in lanes, bank equipment, and furniture and fixtures, all of which
are owned by the Bank. A drive-up ATM was added in early 1997.
Hutchinson Island, opened on December 31, 1984, is in a shopping center
located on a coastal barrier island, close to numerous oceanfront
condominium developments. In 1993, the branch was expanded from 2,800
square feet to 4,000 square feet and is under a long term lease to the
Bank. The Bank has improved the premises with bank equipment, a walk-up ATM
and three drive-in lanes, all owned by the Bank.
Rivergate originally opened October 28, 1985 and occupied 1,700 square feet
of leased space in the Rivergate Shopping Center, Port St. Lucie, Florida.
The Bank moved to larger facilities in the shopping center in April of 1999
under a long term lease agreement. Furniture and bank equipment located in
the prior facilities were moved to the new facility which occupies
approximately 3,400 square feet, with three drive-in lanes and a drive-up
ATM.
Northport was acquired on June 28, 1986 from Citizens Federal Savings &
Loan Association of Miami. This property consists of a storefront under
long term lease in the St. Lucie Plaza Shopping Center, Port St. Lucie, of
approximately 4,000 square feet. This office was closed March 31, 1994 and
the property is presently utilized by local community groups for meetings.
Wedgewood Commons, opened in April 1988, is located on an out parcel under
long term lease in the Wedgewood Commons Shopping Center, south of Stuart
on U.S. Highway 1. The property consists of a 2,800 square foot building
which houses four drive-in lanes, a walk-up ATM and various bank equipment,
all of which are owned by the Bank and are located on the leased property.
Bayshore, opened on September 27, 1990, occupies 3,520 square feet of a
50,000 square foot shopping center located in Port St. Lucie. The Bank has
leased the premises under a long term lease agreement and has made
improvements to the premises, including the addition of three drive-in
lanes and a walk-up ATM, all of which are owned by the Bank. A second
location, acquired in the merger with PSHC, and in close proximity to this
location, was closed on June 1, 1997 and subsequently sold in September
1997.
Hobe Sound, acquired from the RTC on December 23, 1991, is a two story
facility containing 8,000 square feet and is centrally located in Hobe
Sound. Improvements include two drive-in teller lanes, a drive-up ATM, and
equipment and furniture, all of which are owned by the Bank.
Fort Pierce, acquired from the RTC on December 23, 1991, is a 2,895 square
foot facility located in the heart of Fort Pierce and has three drive-in
lanes and a drive-up ATM. Equipment and furniture are all owned by the
Bank.
Martin Downs, purchased from the RTC in February 1992, is a 3,960 square
foot bank building located at a high traffic intersection in Palm City, an
emerging commercial and residential community west of Stuart. Improvements
include three drive-in teller lanes, a drive-up ATM, equipment and
furniture.
Tiffany, purchased from the RTC in May 1992, is a two story facility which
contains 8,250 square feet and is located on a corner of U.S. Highway One
in Port St. Lucie offering excellent exposure in one of the fastest growing
residential areas in the region. The second story which contains 4,250
square feet is leased to tenants. Three drive-in teller lanes, a walk-up
ATM, equipment and furniture are utilized and owned by the Bank.
<PAGE>
Vero Beach, purchased from the RTC in February 1993, is a 3,300 square foot
bank building located in Vero beach on U.S. Highway One and represents the
Bank's initial presence in this Indian River County market. A leasehold
interest in a long term land lease was acquired. Improvements include three
drive-in teller lanes, a walk-up ATM, equipment and furniture, all of which
are owned by the Bank.
Beachland, opened in February 1993, consists of 4,150 square feet of leased
space located in a three-story commercial building on Beachland Boulevard,
the main beachfront thoroughfare in Vero Beach, Florida. An additional
1,050 square feet were leased during 1996. This facility has 2 drive-in
teller lanes, a drive-up ATM, and furniture and equipment, all owned by the
Bank.
Sandhill Cove, opened in September 1993, is in an upscale life-care
retirement community. The 135 square foot office is located within the
community facilities which are located on a 36-acre development in Palm
City, Florida. This community contains approximately 168 private
residences.
St. Lucie West, opened in November 1994, was in a 3,600 square foot
building located at 1320 S.W. St. Lucie Blvd, Port St. Lucie. As a result
of the PSHC acquisition, this facility was closed in June 1997 and the
property was sold in September 1997. On June 1, 1997, the Bank moved its
St. Lucie West operations to the Renar Centre (previously occupied by
PSHC). The Bank leases 4,320 square feet on the first floor of this
facility and 2,468 square feet on the second floor. The facility includes
three drive-in teller lanes, a drive-up ATM, and furniture and equipment.
Mariner Square, acquired from American Bank in April 1995, is a 3,600
square foot leased space located on the ground floor of a three story
office building located on U.S.Highway 1 between Hobe Sound and Port
Salerno. Approximately 700 square feet of the space is sublet to a tenant.
The space occupied by the Bank has been improved to be a full service
branch with two drive-in lanes, one serving as a drive-up ATM lane as well
as a drive-in teller lane, all owned by the Bank.
Sebastian, opened in May 1996, is located within a 174,000 square foot
WalMart Superstore on U.S. 1 in northern Indian River County. The leased
space occupied by the Bank totals 865 square feet. The facility has a
walk-up ATM, owned by the Bank.
Nettles Island was opened in January 1997 in southern St. Lucie County on
Hutchinson Island. It occupies 350 square feet of leased space in a
predominantly modular home community. Furniture and equipment are owned. No
ATM or drive-in lanes are offered.
U.S. 1 and Port St. Lucie Boulevard office opened as a Bank location on
June 1, 1997, upon the merger with PSHC. At the date of the merger, the
leased space consisted of 5,188 square feet on the first floor and 1,200
square feet on the second floor. In October 1997, 1,800 square feet of the
leased space on the first floor and 1,200 square feet of leased space on
the second floor were assigned to another tenant. The present space leased
by the Bank totals 3,388 square feet. The facility has two drive-in lanes,
a walk-up ATM, and furniture and equipment, all owned by the Bank.
South Vero Square opened in May 1997 in a 3,150 square foot building owned
by the Bank on South U.S. 1 in Vero Beach. The facility includes three
drive-in teller lanes, a drive-up ATM, and furniture and equipment, all
owned by the Bank.
Oak Point opened in June 1997. It occupies 12,000 square feet of leased
space on the first and second floor of a 19,700 square foot 3-story
building in Indian River County. The office is in close proximity to Indian
River Memorial Hospital and the peripheral medical community adjacent to
the hospital. The facility includes three drive-in teller lanes, a walk-up
ATM, and furniture and equipment, all owned by the Bank. Approximately
2,000 square feet of the second floor is sublet to tenants.
Route 60 Vero opened in July 1997. Similar to the Sebastian office, this
facility is housed in a WalMart Superstore in western Vero Beach in Indian
River County. The branch occupies 750 square feet of leased space and
includes a walk-up ATM.
Sebastian West opened in March 1998 in a 3,150 square foot building owned
by the Bank. It is located at the intersection of Fellsmere Road and
Roseland Road in Sebastian. The facility includes three drive-in teller
lanes, a drive-up ATM, and furniture and equipment, all owned by the Bank.
For additional information, refer to Notes F and I of the Notes to
Consolidated Financial Statements in the 1998 Annual Report of Seacoast
incorporated herein by reference pursuant to Item 8 of this document.
<PAGE>
Item 3. Legal Proceedings
The Company and its subsidiaries, because of the nature of their business,
are at times subject to numerous legal actions, threatened or filed, in the
normal course of their business. Although the amount of any ultimate
liability with respect to such matters cannot be determined, in the opinion
of management, after consultation with legal counsel, those claims and
lawsuits, when resolved, should not have a material adverse effect on the
consolidated results of operation or financial condition of Seacoast and
its subsidiaries.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Part II
-------
Item 5 Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters
The Class A Common Stock is traded in the over the counter market and
quoted on the Nasdaq National Market System ("Nasdaq Stock Market"). There
is no established public trading market for the Class B Common Stock of
Seacoast. As of February 12, 1999, there were approximately 1,025 record
holders of the Class A Common Stock and 86 record holders of the Class B
Common Stock.
Seacoast Class A Stock is traded in the over-the-counter market and is
quoted on the Nasdaq Stock Market under the symbol "SBCFA". The following
table sets forth the high, low and last sale prices per share of Seacoast
Class A Stock on the Nasdaq Stock Market and the dividends paid per share
of Seacoast Class A Stock for the indicated periods.
Sale Price Per Annual Dividends
Share of Seacoast Declared Per Share
Class A Stock of Seacoast Class
A Stock
High Low
1998
First Quarter . . . . . $38.50 $34.00 $0.22
Second Quarter. . . . . 39.50 35.75 0.22
Third Quarter. . . . . 40.00 29.75 0.22
Fourth Quarter. . . . . 29.00 23.00 0.24
1997
First Quarter................. $29.50 $25.625 $0.20
Second Quarter................ 30.50 24.625 0.20
Third Quarter................. 38.50 29.75 0.20
Fourth Quarter................ 39.50 34.25 0.22
Seacoast's Articles of Incorporation prohibit the declaration or payment of
cash dividends on Class B Common Stock unless cash dividends are declared
or paid on Class A Common Stock in an amount equal to at least 110% of any
cash dividend on Class B Common Stock. Dividends on Class A Common Stock
payable in shares of Class A Common Stock shall be paid to holders of Class
A Common and Class B Common Stock at the same time and on the same basis.
In 1996, cash dividends of $.65 per share of Class A Common Stock and $.585
per share of Class B Common Stock were paid. In 1997, cash dividends of
$.82 per share of Class A Common Stock and $.74 per share of Class B Common
Stock were paid. In 1998, cash dividends of $.90 per share of Class A
Common Stock and $.818 per share of Class B Common Stock were paid.
Dividends from the Bank are Seacoast's primary source of funds to pay
dividends on Seacoast capital stock. Under the National Bank Act, the Bank
may in any calendar year, without the approval of the OCC, pay dividends to
the extent of net profits for that year, plus retained net profits for the
preceding two years (less any required transfers to surplus). The need to
maintain adequate capital in the Bank also limits dividends that may be
paid to Seacoast. Information regarding a restriction on the ability of the
Bank to pay dividends to Seacoast is contained in Note B of the "Notes to
Consolidated Financial Statements" contained in Item 8 hereof. See
"Supervision and Regulation" contained in Item 1 of this document.
<PAGE>
The OCC and Federal Reserve have the general authority to limit the
dividends paid by insured banks and bank holding companies, respectively,
if such payment may be deemed to constitute an unsafe or unsound practice.
If, in the particular circumstances, the OCC determines that the payment of
dividends would constitute an unsafe or unsound banking practice, the OCC
may, among other things, issue a cease and desist order prohibiting the
payment of dividends. This rule is not expected to adversely affect the
Bank's ability to pay dividends to Seacoast. See "Supervision and
Regulation" contained in Item 1 of this document.
Each share of Class B Common Stock is convertible by its holder into one
share of Class A Common Stock at any time prior to a vote of shareholders
authorizing a liquidation of Seacoast.
Item 6 Selected Financial Data
Selected financial data is incorporated herein by reference under the
caption "Financial Highlights" on page 4 of the 1998 Annual Report. See
Exhibit 13.
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption "Financial Review - 1998 Management's
Discussion and Analysis", on pages 14 through 26 of the 1998 Annual Report
is incorporated herein by reference. See Exhibit 13.
Item 7A. Market Risk
Market risk reflects the risk of economic loss resulting from adverse
changes in market prices and interest rates. This risk of loss can be
reflected in either diminished current market values or reduced potential
net income in future periods.
The Company market risk arises from interest rate risk inherent in its
lending and deposit taking activities. The structure of the Company's loan
and deposit portfolios is such that a significant decline in the primary
rate may adversely effect net market values and interest income. Management
seeks to manage this risk through the utilization of various tools,
including the pricing and maturities of its assets and liabilities,
including its investments. The composition and size of the investment
portfolio is managed so as to reduce the interest rate risk in the deposit
and loan portfolios. Currently, the Company does not use any off-balance
sheet derivatives. See the "Interest Rate Sensitivity" section of the
Annual Report for further information regarding the risk associated with
changes in interest rates.
Item 8 Financial Statements and Supplementary Data
The report of Arthur Andersen LLP, independent certified public
accountants, and the consolidated financial statements are included on
pages 31 through 45 of the 1998 Annual Report and are incorporated herein
by reference. "Selected Quarterly Information - Consolidated Quarterly
Average Balances, Yields & Rates" and Quarterly Consolidated Income
Statements" included on pages 27 through 29 of the 1998 Annual Report are
incorporated herein by reference. See Exhibit 13.
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
<PAGE>
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors and executive officers of Seacoast is
set forth under the headings "Proposal One - Election of Directors",
"Information About the Board of Directors and its Committees" and
"Executive Officers" on pages 2 through 8 in the 1999 Proxy Statement and
is incorporated herein by reference.
Item 11. Executive Compensation
Information set forth under the headings "Proposal One - Election of
Directors - Compensation of Executive Officers", "Salary and Benefits
Committee Report", "Summary Compensation Table", "Grants of Options/SARs in
1998", "Aggregated Options/SAR Exercises in 1998 and 1998 Year-End
Option/SAR Values", "Profit Sharing Plan", "Performance Graph", and
"Employment and Severance Agreements" on pages 9 through 17 of the 1999
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information set forth under the headings, "Proposal One Election of
Directors - General" on pages 2 through 7, "Proposal One - Election of
Directors - Management Stock Ownership" on page 8, and "Principal
Shareholders" on page 18 to 19 in the 1999 Proxy Statement, relating to the
number of shares of Class A Common Stock and Class B Common Stock
beneficially owned by the directors of Seacoast, all such directors and
officers as a group and certain beneficial owners is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information set forth under the heading "Proposal One - Election of
Directors - Salary and Benefits Committee Interlocks and Insider
Participation" and "Certain Transactions and Business Relationships" on
page 17 through 18 of the 1999 Proxy Statement is incorporated herein by
reference.
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
a)(1) List of all financial statements
The following consolidated financial statements and report of independent
certified public accountants of Seacoast, included in the 1998 Annual
Report are incorporated by reference into Item 8 of this Annual Report on
Form 10-K.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
a)(2) List of Financial Statement Schedules
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
a)(3) Listing of Exhibits
The following Exhibits are filed as part of this report in Item 14 (c):
Exhibit 3.1 Amended and Restated Articles of Incorporation
----------------------------------------------------------
Incorporated herein by reference from registrant's Current Report on Form
8-K, File No. 0-13660, dated June 6, 1997
Exhibit 3.2 Amended and Restated By-laws of the Corporation
---------------------------------------------------------------
Incorporated herein by reference from Exhibit 3.2 of Registrant's Current
Report on Form 8-K, File No. 0-13660, dated June 6, 1997
Exhibit 4.1 Specimen Class A Common Stock Certificate
-----------------------------------------------------
Incorporated herein by reference from Exhibit 4.1 of the
Registrant's Registration Statement on Form S-1, File No. 2-88829
Exhibit 4.2 Specimen Class B Common Stock Certificate
-----------------------------------------------------
Incorporated herein by reference from Exhibit 4.2 of registrant's
Registration Statement on Form S-1, File No. 2-88829
Exhibit 10.1 Profit Sharing Plan, as amended
--------------------------------------------
Incorporated herein by reference from registrants' Registration Statement
on Form S-8, File No. 33-22846, dated July 18, 1988, and as amended, from
Exhibit 10.1 of registrant's Annual Reports on Form 10-K, dated March 27,
1998.
Exhibit 10.2 Employee Stock Purchase Plan
-----------------------------------------
Incorporated herein by reference from registrant's Registration
Statement on Form S-8 File No. 33-25627, dated November 18, 1988
Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan
----------------------------------------- ----- -------------
Incorporated herein by reference from registrant's Annual Reports on Form
10-K, dated March 29, 1991
Exhibit 10.4 Executive Employment Agreement
---------------------- ---------- ---------
Dated March 22, 1991 between A. Douglas Gilbert and the Bank, incorporated
herein by reference from registrant's Annual Reports on Form 10-K, dated
March 29, 1991
Exhibit 10.5 Executive Employment Agreement
---------------------------------------------
Dated January 18, 1994 between Dennis S. Hudson, III and the Bank,
incorporated herein by reference from registrant's Annual Reports on Form
10-K, dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement
--------------------------------------------
Dated July 31, 1995 between C. William Curtis, Jr. and the Bank,
incorporated herein by reference from registrant's Annual Reports
on Form 10-K, dated March 28, 1996.
Exhibit 10.8 1991 Stock Option & Stock Appreciation Rights Plan
----------------------------------------------------------------
Incorporated herein by reference from registrant's Registration Statement
on Form S-8 File No. 33-61925, dated August 18, 1995.
Exhibit 10.9 1996 Long Term Incentive Plan
--------------------------------------------
Incorporated herein by reference from registrant's 1996 Proxy Statement,
dated March 21, 1996
Exhibit 10.10 Non-Employee Director Stock Compensation Plan
-----------------------------------------------------------
Incorporated herein by reference from registrant's 1996 Registration
Statement on Form S-8 File No. 333-70399 dated January 11, 1999
<PAGE>
Exhibit 13 1998 Annual Report
------------------------------
The following portions of the 1998 Annual Report are incorporated herein by
reference:
Financial Highlights
Financial Review - Management's Discussion and Analysis
Selected Quarterly Information - Quarterly Consolidated Income Statements
Selected Quarterly Information - Consolidated Quarterly
Average Balances, Yields & Rates
Financial Statements
Notes to Consolidated Financial Statements
Financial Statements - Report of Independent Certified
Public Accountants
Exhibit 21 Subsidiaries of Registrant
--------------------------------------
Incorporated herein by reference from Exhibit 22 of Registrant's Annual
Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 23 Consent of Independent Certified Public Accountants
---------------------------------------------------------------
Exhibit 27 Financial Data Schedule (for SEC use only)
------------------------------------------------------
b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1998.
c) Exhibits
The response to this portion of Item 14 is submitted as a separate section of
this report.
d) Financial Statement Schedules
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stuart,
State of Florida, on the 29th day of March, 1999.
SEACOAST BANKING CORPORATION OF FLORIDA
(Registrant)
By: /s/ Dennis S. Hudson, III
--------------------------
Dennis S. Hudson, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date
/s/ Dale M. Hudson March 29, 1999
- ------------------
Dale M. Hudson, Chairman of the Board
and Director
/s/ Dennis S. Hudson, III March 29, 1999
- -------------------------
Dennis S. Hudson, III, President,
Chief Executive Officer and Director
/s/ William R. Hahl March 29, 1999
- -------------------
William R. Hahl, Executive Vice President and
Chief Financial Officer
_____________________________________________ March 29, 1999
Jeffrey C. Bruner, Director
/s/ John H. Crane March 29, 1999
- -----------------
John H. Crane, Director
/s/ Evans Crary, Jr. March 29, 1999
- --------------------
Evans Crary, Jr., Director
_____________________________________________ March 29, 1999
Christopher E. Fogal, Director
_____________________________________________ March 29, 1999
Jeffrey S. Furst, Director
/s/ Dennis S. Hudson, Jr. March 29, 1999
- -------------------------
Dennis S. Hudson, Jr., Director
_____________________________________________ March 29, 1999
John R. Santarsiero, Jr., Director
/s/ Thomas H. Thurlow, Jr. March 29, 1999
- --------------------------
Thomas H. Thurlow, Jr., Director
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 36,848
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 60,590
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 238,934
<INVESTMENTS-CARRYING> 22,249
<INVESTMENTS-MARKET> 22,895
<LOANS> 701,550
<ALLOWANCE> 6,343
<TOTAL-ASSETS> 1,092,230
<DEPOSITS> 905,202
<SHORT-TERM> 77,758
<LIABILITIES-OTHER> 5,858
<LONG-TERM> 24,970
0
0
<COMMON> 518
<OTHER-SE> 77,924
<TOTAL-LIABILITIES-AND-EQUITY> 1,092,230
<INTEREST-LOAN> 54,617
<INTEREST-INVEST> 14,266
<INTEREST-OTHER> 876
<INTEREST-TOTAL> 69,759
<INTEREST-DEPOSIT> 27,857
<INTEREST-EXPENSE> 29,546
<INTEREST-INCOME-NET> 40,213
<LOAN-LOSSES> 1,710
<SECURITIES-GAINS> 612
<EXPENSE-OTHER> 35,721
<INCOME-PRETAX> 15,169
<INCOME-PRE-EXTRAORDINARY> 15,169
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,563
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 4.40
<LOANS-NON> 2,418
<LOANS-PAST> 288
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,363
<CHARGE-OFFS> 1,192
<RECOVERIES> 462
<ALLOWANCE-CLOSE> 6,343
<ALLOWANCE-DOMESTIC> 6,343
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Financial Highlights
(Dollars in thousands except
per share data)
FOR THE YEAR 1998 1997 1996 1995 1994
- ------------ ---- ---- ---- ---- ----
Net interest income $40,213 $38,077 $36,223 $31,035 $28,758
Provision for loan losses 1,710 913 1,090 456 308
Noninterest income:
Securities gains 612 48 76 421 764
Other 11,775 10,896 10,331 8,747 7,219
Noninterest expenses 35,721 36,425 31,768 27,766 25,684
Income before income taxes 15,169 11,683 13,772 11,981 10,749
Provision for income taxes 5,606 4,251 4,933 4,208 3,562
Net income 9,563 7,432 8,839 7,773 7,187
Core earnings (1) 16,565 12,755 14,968 12,099 10,320
Per share data
Net income:
diluted 1.84 1.42 1.71 1.51 1.39
basic 1.88 1.45 1.73 1.52 1.40
Cash dividends paid:
Class A common 0.90 0.82 0.65 0.54 0.49
Book value 15.87 15.75 15.08 14.05 12.27
Dividends to net income 47.4% 53.8% 30.9% 29.3% 31.4%
AT YEAR END
Assets $1,092,230 $943,037 $938,501 885,881 $759,014
Securities 261,183 220,150 223,169 234,795 286,664
Net loans 695,207 608,567 570,667 493,328 351,956
Deposits 905,202 806,098 811,493 765,200 646,312
Shareholders' equity 78,442 81,064 76,995 71,155 62,975
Performance ratios:
Return on average assets 0.98% 0.83% 1.04% 0.98% 1.03%
Return on average equity 11.64 9.17 11.63 11.12 11.01
Net interest margin (2) 4.40 4.60 4.60 4.24 4.55
Average equity to average
assets 8.39 9.09 8.96 8.77 9.39
- ---------------------------------
(1) Income before taxes excluding the provision for loan losses, securities
gains and expenses associated with foreclosed and repossessed asset
management and dispositions.
(2) On a fully taxable equivalent basis.
<PAGE>
================================================================================
FINANCIAL REVIEW
================================================================================
1998 Management's Discussion and Analysis
Net income for 1998 totaled $9,563,000 or $1.84 per share diluted, compared with
$7,432,000 or $1.42 per share diluted in 1997 and $8,839,000 or $1.71 per share
diluted in 1996. Return on average assets was 0.98 percent and return on average
shareholders' equity was 11.64 percent for 1998, compared to the prior year's
results of 0.83 percent and 9.17 percent, respectively, and 1996's results of
1.04 percent and 11.63 percent, respectively.
Earnings in 1998 were impacted by net non-recurring gains of $330,000 ($209,000
after tax). This includes a gain of $616,000 on the sale of the Company's credit
card portfolio and a charge of $286,000 taken to cancel a contract for
processing of the Company's trust business.
Earnings in 1997 were impacted by a special charge for a planned replacement of
the Company's mainframe hardware and software of $1,079,000 ($682,000 after tax)
and merger related expenses of $1,542,000 ($975,000 after tax). The merger
related expenses were a result of the Company acquiring Port St. Lucie National
Bank Holding Corp.(PSHC) and its subsidiary, Port St. Lucie National Bank (PSNB)
on May 30, 1997. The transaction was accounted for as a pooling of interests and
all prior period amounts have been restated assuming the companies had been
combined since inception. PSHC shareholders received 900,000 shares of the
company for all of their issued and outstanding common stock, warrants and
options. Acquired deposits totaled $116.0 million and loans totaled $93.7
million.
Earnings in 1996 were reduced by a one-time special assessment of $500,000
($316,000 after tax) to replenish the Savings Association Insurance Fund (SAIF)
and a nonrecurring charge of $600,000 ($379,000 after tax) related to the
termination and settlement of the Company's pension plan.
TABLE 1:
Condensed Income Statement as a Percent of Average Assets
(Tax equivalent basis)
1998 1997 1996
---- ---- ----
Net interest income 4.14% 4.31% 4.32%
Provision for loan losses 0.17 0.10 0.13
Noninterest income
Securities gains 0.06 0.01 0.01
Other 1.20 1.22 1.22
Noninterest expenses 3.64 4.09 3.75
---- ---- ----
Income before income taxe 1.59 1.35 1.67
Provision for income taxes
including tax equivalent
adjustment 0.61 0.52 0.63
---- ---- ----
Net Income 0.98% 0.83% 1.04%
========= ======= ========
<PAGE>
---------------------
Results of Operations
---------------------
Net Interest Income
- -------------------
Net interest income (on a fully tax equivalent basis) increased $2,142,000 or
5.6 percent to $40,587,000 for 1998, compared to a year ago. For 1998, the net
interest margin decreased to 4.40 percent from 4.60 percent for 1997.
The cost of interest bearing liabilities in 1998 remained level year over year
at 3.82 percent. While the cost for NOW account balances increased 27 basis
points, a direct result of the Company successfully increasing balances with its
Money Manager product which consolidates customer NOW account and brokerage
activities and offers a higher interest rate, rates paid for savings, money
market accounts, certificates of deposits and short term borrowings (principally
sweep repurchase agreements with customers of the Company's subsidiary bank)
declined and were offsetting. In the third quarter, the Company obtained
borrowings totaling $24,970,000 with a duration of 2.7 years from the Federal
Home Loan Bank (FHLB) and Donaldson, Lufkin and Jenrette (DLJ) at a weighted
average rate of 5.75 percent. The funds were used to acquire investments with
comparable duration to the funding at a 110 basis point spread.
The yield on earning assets in 1998 declined 18 basis points year over year to
7.60 percent. Decreases in the yield on loans of 27 basis points, the yield on
securities of 7 basis points and the yield on federal funds sold of 12 basis
points were partially offset by a changing earning asset mix, with a $73.5
million increase in average loans. The yield on loans was affected by the sale
of the $7.1 million credit card portfolio in July 1998 which had yielded 12
percent and lower interest rates which caused many businesses and homeowners to
refinance their existing mortgages to lower rates during 1998.
TABLE 2:
Changes in Average Earning Assets
(Dollars in thousands)
Increase/(Decrease) Increase/(Decrease)
1998 vs 1997 1997 vs 1996
------------ ------------
Securities:
Taxable $ 25,609 12.9 $(16,216) (7.5)%
Nontaxable (1,383) (10.2) (1,748) (11.4)
Federal funds sold
and other short (11,545) (41.1) 227 0.8
term investments
Loans, net 73,533 12.3 57,554 10.7
------ ---- ------ ----
Total $ 86,214 10.3% $39,817 5.0%
=========== ======== ======= =======
================================================================================
<PAGE>
TABLE 3:
Rate/Volume Analysis (On a Tax Equivalent Basis)
Amount of Increase/(Decrease) (Dollars in thousands)
1998 vs 1997
Due to Change In:
-----------------
Volume Rate Mix Total
------ ---- --- -----
Interest income
Securities:
Taxable $1,563 $(115) $(15) $ 1,433
Nontaxable (115) 12 (1) (104)
---- -- -- ----
1,448 (103) (16) 1,329
Federal funds sold and
other short term
investments (625) (32) 13 (644)
Loans 6,203 (1,603) (198) 4,402
----- ------ ---- -----
Total Interest 7,026 (1,738) (201) 5,087
Income
Interest expense
NOW (155) 195 (24) 16
Savings deposits 311 (317) (53) (59)
Money market accounts 506 (57) (8) 441
Time deposits 1,828 (140) (13) 1,675
----- ---- --- -----
2,490 (319) (98) 2,073
Federal funds purchased
and other short term
borrowings 226 (14) (4) 208
Other borrowings 664 0 0 664
--- - - ---
Total Interest
Expense 3,380 (333) (102) 2,945
----- ---- ---- -----
Net Interest Income $3,646 $(1,405) $(99) $2,142
====== ======= ==== ======
- ---------------
Rate/Volume Analysis (On a Tax Equivalent Basis)(con't)
Amount of Increase (Decrease) (Dollars in thousands)
1997 vs 1996
Due to Change In:
-----------------
Volume Rate Mix Total
------ ---- --- -----
Interest income
Securities:
Taxable $(1,193) $ 329 $(30) $ (894)
Nontaxable (163) 18 (2) (147)
---- -- -- ----
(1,356) 347 (32) (1,041)
Federal funds sold and
other short term
investments 237 (171) (28) 38
Loans 5,878 (1,350) (173) 4,355
----- ------ ---- -----
Total Interest 4,759 (1,174) (233) 3,352
Income
Interest expense
NOW 91 116 10 217
Savings deposits (76) (60) 2 (134)
Money market accounts 140 180 8 328
Time deposits 1,448 (341) (28) 1,079
----- ---- --- -----
1,603 (105) (8) 1,490
Federal funds purchased
and other short term
borrowings 115 (49) (7) 59
Other borrowings 0 0 0 0
- - - -
Total Interest
Expense 1,718 (154) (15) 1,549
----- ---- --- -----
Net Interest Income $3,041 $(1,020)$ (218) $1,803
===== ====== ===== =====
<PAGE>
Average earning assets during 1998 were $86,214,000 or 10.3 percent higher when
compared to prior year. Average loan balances grew $73,533,000 or 12.3 percent
to $669,417,000 and average investment securities grew $24,226,000 or 11.4
percent to $236,591,000, while average federal funds sold decreased $11,545,000
or 41.1 percent to $16,523,000. The growth in loans and an increase in lower
cost interest bearing liabilities mitigated the decline in the margin. Loans
(the highest yielding component of earning assets) as a percentage of average
earning assets increased to 72.6 percent in 1998, versus 71.3 percent a year
ago. Average certificates of deposit (the highest cost component of interest
bearing deposits) as a percentage of interest bearing liabilities decreased to
50.8 percent in 1998, compared to 51.5 percent in 1997. Lower cost interest
bearing core deposits (NOW, savings and money market deposits) grew $26,473,000
or 8.4 percent to $343,353,000. Also favorably affecting the mix of deposits was
an increase in average noninterest bearing demand deposits of $8,792,000 or 8.0
percent to $118,180,000.
TABLE 4:
Changes in Average Interest Bearing Liabilities
(Dollars in thousands)
Increase/(Decrease) Increase/(Decrease)
1998 vs 1997 1997 vs 1996
------------------- --------------
NOW $(8,992) (12.4)% $3,893 5.7%
Savings deposits 12,902 16.7 (2,955) (3.7)
Money market
accounts 22,563 13.5 7,547 4.7
Time deposits 34,339 9.6 22,500 6.7
Federal funds
purchased and
other short term
borrowings 5,614 27.7 2,058 11.3
Other borrowings 11,549 N/M N/M N/M
========== ========== ========= ======
Total $77,795 11.2% $33,043 5.0%
========== ========== ========== ======
N/M = not meaningful
Net interest income (fully taxable equivalent) for 1997 rose $1,803,000 or 4.9
percent, due to increased business volumes at a net interest margin level year
over year at 4.60 percent. In 1997, rates paid for interest bearing deposits
rose by five basis points to 3.82 percent primarily as a result of two new
higher rate deposit product offerings. In addition, the interest rate paid for
short term borrowings decreased thirteen basis points to 4.03 percent. The
resulting rate paid for all interest bearing liabilities in 1997 was 3.82
percent, four basis points higher than in 1996.
During 1997, average total deposits increased $30,985,000 or 4.8 percent.
Average time deposits increased $22,500,000 or 6.7 percent, while on an
aggregate basis, average balances for NOW, savings and money market accounts,
which are lower cost interest bearing deposits, increased $8,485,000 or 2.8
percent. Most significant of all, the deposit mix was favorably affected by an
increase in average noninterest bearing demand deposits of $6,095,000 or 5.9
percent.
The yield on earning assets increased three basis points during 1997 to 7.78
percent. Average earning assets for 1997 increased $39,817,000 or 5.0 percent,
compared to the prior year. Although $58.5 million in fixed rate residential
mortgage loans were sold in 1997, average total loans grew $57,554,000 or 10.7
percent. Partially funding the growth in loans was a decline in average
investment securities of $17,964,000 or 7.8 percent.
<PAGE>
TABLE 5:
Three-Year Summary
Average Balances, Interest Income and Expenses, Yields and Rates (1)
(Dollars in
thousands) 1998
- ---------- ----
Average Yield/
Balance Interest Rate
------- -------- -----
Assets
Earning assets:
Securities
Taxable $224,354 $13,562 6.04%
Nontaxable 12,237 1,026 8.38
------ ----- ----
Total
Securities 236,591 14,588 6.17
Federal funds
sold and other
short term
investments 16,523 876 5.30
Loans (2) 669,417 54,669 8.17
------- ------ ----
Total Earning
Assets 922,531 70,133 7.60
Allowance for loan
losses (5,739)
Cash and due from
banks 29,244
Bank premises and
equipment 18,620
Other assets 14,737
------
$979,393
======== ==================
Liabilities and
Shareholders
Equity
Interest-bearing
liabilities:
NOW $63,247 $ 1,261 1.99%
Savings deposits 90,132 1,801 2.00
Money market
accounts 189,974 4,192 2.21
Time deposits 392,976 20,603 5.24
Federal funds
purchased and
other short
term borrowings 25,908 1,025 3.96
Other borrowings 11,549 664 5.75
------ --- ----
Total
Interest
Bearing
Liabilities 773,786 29,546 3.82
Demand deposits 118,180
Other liabilities 5,277
-----
897,243
Shareholders'
equity 82,150
------
$979,393
======== ========== =======
Interest expense
as % of earning 3.20%
assets
Net interest
income/yield on
earning assets $40,587 4.40%
======== ========== =======
<PAGE>
- -----------------------------
Three-Year Summary (con't)
Average Balances, Interest Income and Expenses, Yields and Rates (1)
(Dollars in
thousands) 1997
- ---------- ----
Average Yield/
Balance Interest Rate
------- -------- ----
Assets
Earning assets:
Securities
Taxable $198,745 $ 12,129 6.10%
Non Taxable 13,620 1,130 8.30
------ ----- ----
Total 212,365 13,259 6.24
Securities
Federal funds
sold and other
short term
investments 28,068 1,520 5.42
Loans (2) 595,884 50,267 8.44
------- ------ ----
Total Earning
Assets 836,317 65,046 7.78
Allowance for loan
losses (5,554)
Cash and due from
banks 26,148
Bank premises and
equipment 17,996
Other assets 16,594
------
$891,501
========= ========= =========
Liabilities and
Shareholders
Equity
Interest-bearing
liabilities:
NOW $72,239 $1,245 1.72%
Savings deposits 77,230 1,860 2.41
Money market
accounts 167,411 3,751 2.24
Time deposits 358,637 18,928 5.28
Federal funds
purchased and
other short
term borrowings 20,294 817 4.03
Other borrowings 0 0
- - -
Total Interest
Bearing
Liabilities 695,811 26,601 3.82
Demand deposits 109,388
Other liabilities 5,244
-----
810,443
Shareholders' 81,058
------
Equity $891,501
========== ======= =========
Interest expense
as % of earning
assets 3.18%
Net interest
income/yield on
earning assets $38,445 4.60%
========== ======= =========
- -------------------------------
<PAGE>
Three-Year Summary (con't)
Average Balances, Interest Income and Expenses, Yields and Rates (1)
(Dollars in
thousands) 1996
- ---------- ----
Average Yield/
Balance Interest Rate
---------------- ----
Assets
Earning assets:
Securities
Taxable $214,961 $13,023 6.06%
Nontaxable 15,368 1,277 8.31
------ ----- ----
Total 230,329 14,300 6.21
+Securities
Federal funds
sold and other
short term
investments 27,841 1,482 5.32
Loans (2) 538,330 45,912 8.53
------- ------ ----
Total Earning
Assets 796,500 61,694 7.75
Allowance for loan
losses (5,130)
Cash and due from
banks 23,660
Bank premises and
equipment 17,187
Other assets 16,410
------
$848,627
========== ======== =========
Liabilities and
Shareholders
Equity
Interest-bearing
liabilities:
NOW $68,346 $1,028 1.50%
Savings deposits 80,185 1,994 2.49
Money market
accounts 159,864 3,423 2.14
Time deposits 336,137 17,849 5.31
Federal funds
purchased and
other short
term borrowings 18,236 758 4.16
Other borrowings 0 0
- - -
Total
Interest
Bearing
Liabilities 662,768 25,052 3.78
Demand deposits 103,293
Other liabilities 6,535
-----
772,596
Shareholders'
Equity 76,031
------
$848,627
========== ======== =========
Interest expense
as % of earning
assets 3.15%
Net interest
income/yield on
earning assets $36,642 4.60%
========= ======== =========
- -------------
(1) The tax equivalent adjustment is based on a 34% tax rate.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
<PAGE>
Provision for Loan Losses
- -------------------------
Strong loan growth in 1998 resulted in higher provisioning, which was mitigated
by a lowered net charge off ratio (0.11 percent in 1998 versus 0.20 percent in
1997), and resulted in a provision for loan losses in 1998 of $1,710,000. The
provision for loan losses in 1997 was $913,000, and in 1996 was $1,090,000. The
sale of the credit card portfolio in 1998 reduced the Company's exposure to
losses from consumer bankruptcies and should result in lower net charge offs in
the future. See "Nonperforming Assets" and "Allowance for Loan Losses."
Management determines the provision for loan losses which is charged to
operations by constantly analyzing and monitoring delinquencies, nonperforming
loans and the level of outstanding balances for each loan category, as well as
the amount of net charge offs, and by estimating losses inherent in its
portfolio. While the Company's policies and procedures used to estimate the
monthly provision for loan losses charged to operations are considered adequate
by management and are reviewed from time to time by the Office of the
Comptroller of the Currency, there exist factors beyond the control of the
Company, such as general economic conditions both locally and nationally, which
make management's judgment as to the adequacy of the provision necessarily
approximate and imprecise. While increased loan balances are forecast, the sale
of the credit card portfolio and ongoing recovery of credit card balances
charged off in 1998 and prior years may permit management to lower provisioning
for loan losses in 1999 compared to 1998 and 1997.
Noninterest Income
- ------------------
Table 6 shows noninterest income for the years indicated.
Noninterest income, excluding gains from sales of securities, totaled
$11,775,000 in 1998, an increase of $879,000 or 8.1 percent from last year.
Included in noninterest income for 1998 is a non-recurring gain of $616,000 from
the sale of the Company's $7.1 million credit card portfolio. Without this gain,
noninterest income increased 2.4 percent year over year.
During 1998, service charges on deposit accounts increased $177,000 or 4.2
percent, while other service charges and fees declined $33,000, primarily as a
result of the loss of fees earned on the sold credit card portfolio. Income from
brokerage services increased $252,000 or 13.6 percent and trust income declined
$62,000 or 2.8 percent. Trust income was lower due to reduced fees from estate
accounts, partially offset by increased fees from new trust management accounts.
Noninterest income, excluding gains from sales of securities, increased $560,000
or 5.5 percent in 1997 compared to the prior year. The largest increase in
noninterest income occurred in service charges on deposits which increased
$747,000 or 21.7 percent, a result of internal growth, certain services being
repriced, and the impact of the acquisition. Trust income increased, by $137,000
or 6.6 percent. Additional sales staff in trust and the increased market values
of trust assets accounted for the improved income. Brokerage commissions and
fees decreased $193,000 or 9.4 percent as business volumes were impacted by
staff turnover and market volatility.
Residential real estate lending is an important segment of the Company's lending
activities, and exposure to market interest rate volatility is managed at times
by the sale of fixed rate loans in the secondary market. Consumer interest in
fixed rate mortgages remained strong in 1998. In 1998 and 1997, additional
income of $67,000 and $202,000, respectively, from the sale of loans was
recorded in other income. In 1996, income from the sale of residential mortgages
of $564,000 was recorded, explaining the $191,000 or 16.5 percent decline in
other income in 1997. The decline from 1996 to 1997 resulted from ceasing to
offer mortgage products to customers outside the Company's primary markets and
adjacent communities.
Proceeds from sales of securities and funds received from maturing securities
have been utilized to fund seasonal deposit declines and lending activities. As
a result of sales of securities in 1998, 1997 and 1996, net gains of $612,000,
$48,000 and $76,000, respectively, were recognized. Declining interest rates in
1998 generated larger gains on sales of securitized fixed rate residential loans
originated by the Company's subsidiary bank.
<PAGE>
Table 6:
Noninterest Income
(Dollars in thousands)
Year Ended % Change
---------- --------
1998 1997 1996 98/97 97/96
---- ---- ---- ----- -----
Service charges
on deposit
accounts $ 4,359 $4,182 $3,435 4.2% 21.7%
Trust fees 2,144 2,206 2,069 (2.8) 6.6
Other service
charges and
fees 1,655 1,688 1,623 (2.0) 4.0
Brokerage
commissions and
fees 2,105 1,853 2,046 13.6 (9.4)
Other 1,512 967 1,158 56.4 (16.5)
----- --- ----- ---- -----
11,775 10,896 10,331 8.1 5.5
Securities gains 612 48 76 1,175.0 (36.8)
--- -- -- ------- -----
Total $12,387 $10,944 $10,407 13.2% 5.2%
======= ======= ======= === ====
NONINTEREST EXPENSES
- --------------------
Table 7 shows the Company's noninterest expenses for the years indicated.
When compared to 1997, noninterest expenses decreased 704,000 or 1.9 percent. As
mentioned earlier, $286,000 in non-recurring charges to cancel a contract for
processing of the Company's trust business was recorded in 1998 and $2.6 million
in special charges related to the PSHC acquisition and year 2000 considerations
impacted 1997's expenses. Without the effect of these items, noninterest
expenses increased $1,631,000 or 4.8 percent in 1998 versus 1997.
In 1998, salaries and wages increased $843,000 or 6.4 percent and employee
benefits grew $174,000 or 5.9 percent. These increases are directly related to
the expansion in Indian River concluded with the opening of the Company's
Sebastian West office in Indian River County in March 1998. Of the increase in
employee benefits, an additional $108,000 was expended for higher group health
insurance costs.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
increased $337,000 or 6.4 percent. Included in this increase are costs related
to the expansion and write-offs of obsolete computer hardware totaling $105,000.
Legal and professional fees increased $111,000 or 12.1 percent compared to a
year ago, primarily as a result of consulting services utilized to assist the
Company during conversion of its core data processing system in 1998.
Outsourced data processing costs increased $755,000 in 1998 versus prior year.
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 bank 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. Of the total increase, roughly $500,000 was
directly related to implementation and processing costs for this new processing
solution in the third and fourth quarter. It is anticipated that fees paid
directly to the third party will total approximately $1.5 million on an annual
basis and will be partially offset by reduced salaries and benefits related to
the elimination of in-house ISD staff positions.
The other expense category decreased $2,827,000 or 32.0 percent in 1998 year
over year. Without the impact of the non-recurring charges previously discussed
for 1998 and 1997, other expenses were $492,000 or 7.9 percent lower. Costs
associated with education, employee placement and advertising, and other
miscellaneous expenses were lower in 1998 than in 1997.
When compared to 1996, noninterest expenses increased $4,657,000 or 14.7 percent
in 1997 as a result of the one-time merger related and year 2000 expenses.
The increase in salaries and wages, employee benefits, occupancy, FF&E expenses
and marketing are primarily the result of expansion into Indian River County.
<PAGE>
TABLE 7:
Noninterest Expenses
(Dollars in thousands)
Year Ended % Change
---------- --------
1998 1997 1996 98/97 97/96
---- ---- ---- ----- -----
Salaries and wages $14,046 $13,203 $12,447 6.4% 6.1%
Pension and other employee
benefits 3,119 2,945 2,875 5.9 2.4
Occupancy 3,129 2,961 2,675 5.7 10.7
Furniture and equipment 2,436 2,267 2,038 7.5 11.2
Outsourced data processing
Costs 2,881 2,126 1,594 35.5 33.4
Marketing 1,964 2,151 1,878 (8.7) 14.5
Legal and professional fees 1,029 918 1,046 12.1 (12.2)
FDIC assessments 135 136 634 (0.7) (78.5)
Foreclosed and repossessed
asset management and
dispositions 298 207 182 44.0 13.7
Amortization of intangibles 671 671 661 0.0 1.5
Other 6,013 8,840 5,738 (32.0) 54.1
----- ----- ----- ----- ----
Total $35,721 $36,425 $31,768 (1.9)% 14.7%
========== ========== ========= ==== ====
INCOME TAXES
- ------------
Income taxes as a percentage of income before taxes were 37.0 percent for 1998,
36.4 percent for 1997, and 35.8 percent in 1996. Most of the increase in rates
year to year can be attributed to higher state income taxes, a result of lower
tax credit, lower tax exempt income, and the Company's effective federal tax
rate increasing due to adjusted income before taxes exceeding $10 million.
The Company has deferred tax assets, for which no valuation allowance is
required because the majority of the asset is deemed to be temporary and
sufficient taxable income exists to carry- back to recover the differences.
FINANCIAL CONDITION
- -------------------
Total assets increased $149,193,000 or 15.8 percent to $1,092,230,000 at
December 31, 1998, compared to December 31, 1997's balance. The Company's total
assets increased 0.5 percent between December 31, 1996 and December 31, 1997.
All balances for years prior to year-end 1997 have been restated as a result of
the acquisition of PSHC on May 30, 1997 which was accounted for as a pooling of
interests.
CAPITAL RESOURCES
- -----------------
Table 8 summarizes the Company's capital position and selected ratios. The
Company's ratio of shareholders' equity to period end assets was 7.18 percent at
December 31, 1998, compared with 8.60 percent one year earlier. 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 the repurchased shares totaled
$8,806,000 at December 31, 1998, compared to $1,289,000 a year ago.
<PAGE>
TABLE 8:
Capital Resources (Dollars in thousands)
December 31 1998 1997 1996
- --------------------------------------------------- --------
Tier 1 capital
Common stock $ 518 $ $517 $ 514
Additional paid in capital 27,439 27,256 26,936
Retained earnings 59,738 55,249 52,090
Treasury stock (8,806) (1,289) (911)
Valuation allowance (627) (437) (801)
Intangibles (4,652) (5,308) (5,727)
------ ------ ------
Total Tier 1 capital 73,610 75,988 72,101
Tier 2 capital
Allowance for loan losses,
as limited 6,343 5,363 5,657
----- ----- -----
Total Tier 2 capital 6,343 5,363 5,657
----- ----- -----
Total risk based capital $ 79,953 $81,351 $77,758
======== ======= =======
Risk weighted assets $665,913 $554,988 $528,713
======== ======== ========
Tier 1 risk based capital
ratio 11.05% 13.69% 13.64%
Total risk based capital ratio 12.01 14.66 14.71
Regulatory minimum 8.00 8.00 8.00
Tier 1 capital to adjusted
total assets 7.10 8.44 8.26
Regulatory minimum 4.00 4.00 4.00
Shareholders' equity to assets 7.18 8.60 8.20
Average shareholders' equity
to average total assets 8.39 9.09 8.96
<PAGE>
LOAN PORTFOLIO
- --------------
Table 9 shows total loans (net of unearned income) by category outstanding at
the indicated dates.
Total loans were $701,550,000 at December 31, 1998, $87,620,000 or 14.3 percent
more than at December 31, 1997. The growth of outstanding loan balances was
impacted by residential loan sales (and securitizations) of $81.0 million in
1998 compared to $58.5 million in 1997.
At December 31, 1998, the Company's mortgage loan balances secured by
residential properties amounted to $384,910,000 or 54.9 percent of total loans.
The next largest concentration was loans secured by commercial real estate which
totaled $177,162,000 or 25.3 percent. Most of the commercial real estate loans
were made to local businesses and professionals and are secured by owner
occupied properties. Loans and commitments for 1-4 family residential properties
and commercial real estate are generally secured with first mortgages on
property, with the loan to fair value of the property not exceeding 80 percent
on the date the loan is made. The Company was also a creditor for consumer loans
to individual customers (primarily secured by motor vehicles) totaling
$71,506,000.
In the third quarter of 1998, the Company sold its $7.1 million credit card
portfolio for a gain of $616,000. The sale of this portfolio will reduce the
Company's exposure to losses from consumer bankruptcies impacting the credit
card industry.
Total loans (net of unearned income and excluding the allowance for loan losses)
were $613,930,000 at December 31, 1997, $37,606,000 or 6.5 percent greater than
at December 31, 1996. At December 31, 1997, the Company's portfolio of mortgage
loan balances secured by residential properties amounted to $335,384,000 or 54.6
percent of total loans and loans secured by commercial real estate totaled
$143,858,000 or 23.4 percent of total loans. Consumer loans to individual
customers totaled $64,765,000.
The Treasure Coast is a residential community with commercial activity centered
in retail and service businesses serving the local residents. Therefore, real
estate mortgage lending is an important segment of the Company's lending
activities. Exposure to market interest rate volatility with respect to mortgage
loans, is managed by attempting to match maturities and repricing opportunities
for assets against liabilities, when possible. At December 31, 1998,
approximately $154 million or 40 percent of the Company's mortgage loan balances
secured by residential properties were adjustable.
Of the $154 million, $151 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.
Of the approximately $198 million of new residential loans originated in 1998,
$32 million were adjustable rate and $166 million were fixed rate. The Company
sold approximately $81.0 million of its 30-year and 15-year fixed rate loan
originations in 1998. Loans secured by residential properties having fixed rates
totaled approximately $231 million at December 31, 1998, of which 15- and
30-year mortgages totaled approximately $104 million and $93 million,
respectively. Remaining fixed rate balances were comprised of home improvement
loans with short maturities less than 15 years.
The Company's historical charge off rates for residential loans has been very
low, with only $17,000 in net charge-offs for the year 1998. As in 1998, the
Company expects that 1999's residential loan demand will be comprised of mostly
fixed rate mortgages as a low interest rate environment is again anticipated by
economists.
Fixed rate and adjustable rate loans secured by commercial real estate total
approximately $122 million and $55 million, respectively, at December 31, 1998.
Commercial lending activities are directed principally towards businesses whose
demand for funds are within the Company's lending limits, such as small to
medium sized professional firms, retail and wholesale outlets, and light
industrial and manufacturing concerns. Such businesses typically are smaller,
often have short operating histories and do not have the sophisticated record
keeping systems of larger entities. Most of such loans are secured by real
estate used by such businesses, although certain lines are unsecured. Such loans
are subject to the risks inherent to lending to small to medium sized businesses
including the effects of a sluggish local economy, possible business failure,
and insufficient cash flows. The Company's commercial loan portfolio totaled
$31,908,000 at December 31, 1998 compared to $31,239,000 at December 31, 1997.
The Company makes a variety of consumer loans, including installment loans,
loans for automobiles, boats, home improvements, and other personal, family and
household purposes, and indirect loans through dealers, to finance automobiles.
Most consumer loans are secured.
<PAGE>
Second mortgage loans and home equity lines are extended by the Company. No
negative amortization loans or lines are offered at the present time. Terms of
second mortgage loans include fixed rates for up to 10 years on smaller loans of
$30,000 or less. Such loans are sometimes made for larger amounts, with fixed
rates, but with balloon payments upon maturities, not exceeding five years.
The Company had commitments to make loans (excluding unused home equity lines of
credit and credit card lines) of $76,921,000 at December 31, 1998, compared to
$52,032,000 at the end of 1997.
TABLE 9:
Loans Outstanding
(Dollars in thousands)
December 31 1998 1997 1996 1995 1994
- ----------- ---- ---- ---- ---- ----
Real estate mortgage $574,895 $492,410 $448,680 $391,471 $234,550
Real estate construction 22,877 16,363 18,458 15,492 52,561
Commercial and financial 31,908 31,239 35,459 27,280 18,235
Installment loans to
individuals 71,506 73,673 73,224 63,685 50,346
Other loans 364 245 503 294 336
--- --- --- --- ---
Total $701,550 $613,930 $576,324 $498,222 $356,028
======== ======== ======== ======== ========
TABLE 10:
Loan Maturity Distribution
(Dollars in thousands)
Commercial,
Financial & Real Estate
December 31, 1997 Agricultural Construction Total
- ----------------------- ------------- ------------- ---------
In one year or less $ 12,976 $ 20,249 $ 33,225
After one year but
within five years:
Interest rates are
floating or
adjustable 1,658 0 1,658
Interest rates are fixed 10,477 542 11,019
In five years or more:
Interest rates are
floating or
adjustable 1,204 1,650 2,854
Interest rates are fixed 5,593 436 6,029
----- --- -----
Total $ 31,908 $ 22,877 $ 54,785
======== ======== ========
ALLOWANCE FOR LOAN LOSSES
- -------------------------
Table 11 provides certain information concerning the Company's allowance for
loan losses for the years indicated. The allowance for loan losses was
$6,343,000 at December 31, 1998, $980,000 higher than one year earlier. The
allowance for loan losses as a percentage of nonaccrual loans was 262.3 percent
at December 31, 1998, compared to 237.9 percent at December 31, 1997. The model
utilized to analyze the adequacy of the allowance for loan losses takes into
account such factors as credit quality, internal controls, audit results, staff
turnover, local market economics and loan growth. The resulting lower allowance
level necessitated is also reflective of the bank's favorable and consistent
delinquency trends and historical loss performance. These performance results
are attributed to conservative, long-standing and consistently applied loan
credit policies and to a knowledgeable, experienced and stable staff. As a
result of the sale of the credit card portfolio (see "Loan Portfolio"), the
Company has eliminated its exposure to future credit card losses.
During 1998, the Company experienced net charge offs of $730,000 compared to
$1,207,000 one year earlier. In part, the higher dollar of charge offs recorded
in 1997 compared to 1996, was due to the acquired loans.
Table 12 summarizes the Company's allocation of the allowance for loan losses to
each type of loan and information regarding the composition of the loan
portfolio at the dates indicated.
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, the Company's loan loss experience,
the amount of past due and nonperforming loans, current and anticipated economic
conditions, and the values of certain loan collateral, and other assets. The
size of the allowance also reflects the large amount of permanent residential
loans held by the Company whose historical charge offs and delinquencies have
been superior by any comparison.
While it is the Company's policy to charge off in the current period loans in
which a loss is considered probable, there are additional risks of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy as well
as conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate and imprecise. It is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance for loan
losses and the size of the allowance for loan losses in comparison to a group of
peer companies identified by the regulatory agencies.
In assessing the adequacy of the allowance, management relies predominantly on
its ongoing review of the loan portfolio, which is undertaken both to ascertain
whether there are probable losses which must be charged off and to assess the
risk characteristics of the portfolio in the aggregate. This review considers
the judgments of management, and also those of bank regulatory agencies that
review the loan portfolio as part of their regular examination process.
<PAGE>
TABLE 11:
Summary of Loan Loss Experience
(Dollars in thousands)
Year Ended December 31 1998 1997 1996 1995 1994
- ---------------------- ---- ---- ---- ---- ----
Allowance for loan losses
Beginning balance $ 5,363 $ 5,657 $ 4,893 $ 4,072 $ 4,240
Provision for loan losses 1,710 913 1,090 456 308
Allowance applicable to
loans purchased 0 0 0 556 0
Charge offs:
Commercial and
financial 112 443 80 80 118
Consumer 901 936 525 453 464
Commercial real estate 137 137 36 54 288
Residential real
estate 42 38 84 31 35
-- -- -- -- --
Total Charge Offs 1,192 1,554 725 618 905
Recoveries:
Commercial and
financial 117 76 72 67 167
Consumer 211 197 236 212 209
Commercial real estate 109 63 91 146 39
Residential real estate 25 11 0 2 14
-- -- - - --
Total Recoveries 462 347 399 427 429
--- --- --- --- ---
Net loan charge offs 730 1,207 326 191 476
--- ----- --- --- ---
Ending Balance $6,343 $ 5,363 $ 5,657 $ 4,893 $ 4,072
======== ========= ========= ======== ==========
Loans outstanding at end of
year* $701,550 $613,930 $576,324 $498,222 $356,028
Ratio of allowance for loan
losses to loans outstanding
at end of year 0.90% 0.87% 0.98% 0.98% 1.14%
Daily average loans
outstanding* $669,417 $595,884 $538,330 $430,123 $319,510
Ratio of net charge offs to
average loans outstanding 0.11% 0.20% 0.06% 0.04% 0.15%
* Net of unearned income.
- --------------------------------------------------------
TABLE 12:
ALLOWANCE FOR LOAN LOSSES
Allowance Amount
December 31 1998 1997 1996 1995 1994
- ----------- ---- ---- ---- ---- ----
Commercial and
financial loans $ 576 $ 363 $ 665 $ 450 $ 481
Real estate loans 4,464 3,347 3,681 3,571 2,825
Installment loans 1,303 1,653 1,311 872 766
----- ----- ----- --- ---
Total $6,343 $5,363 $5,657 $4,893 $4,072
====== ====== ====== ====== ======
Percent of Loans in Each Category to Total Loans
December 31 1998 1997 1996 1995 1994
- ----------- ---- ---- ---- ---- ----
Commercial and
financial loans 4.6% 5.1% 6.2% 5.5% 5.2%
Real estate loans 85.3 82.9 81.1 81.7 80.7
Installment loans 10.1 12.0 12.7 12.8 14.1
---- ---- ---- ---- ----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
<PAGE>
NONPERFORMING ASSETS
- --------------------
Nonaccrual loans totaling $1,156,000 at December 31, 1998 were performing, but
because the Company has determined that the collection of principal or interest
in accordance with the original terms of such loans is uncertain, it has placed
such loans on nonaccrual status. Of the amount reported in nonaccrual loans at
December 31, 1998, 84 percent is secured with real estate, 3 percent is ninety
percent 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.
Nonperforming assets are subject to changes in the economy, both nationally and
locally, changes in monetary and fiscal policies, and changes in conditions
affecting various borrowers from the Company's subsidiary bank. No assurance can
be given that nonperforming assets will not in fact increase or otherwise
change. A similar judgmental process is involved in the methodology used to
estimate and establish the Company's allowance for loan losses.
TABLE 13:
Nonperforming Assets
(Dollars in thousands)
December 31 1998 1997 1996 1995 1994
- ----------- ---- ---- ---- ---- ----
Nonaccrual loans (1) $ 2,418 $ 2,254 $ 2,299 $ 5,510 $ 2,311
Renegotiated loans 0 0 0 0 0
Other real estate owned 288 536 1,064 889 382
--- --- ----- --- ---
Total Nonperforming
Assets $ 2,706 $ 2,790 $ 3,363 $ 6,399 $ 2,693
Amount of loans outstanding
at end of year (2) $701,550 $613,930 $576,324 $498,222 $356,028
Ratio of total nonperforming
assets to loans outstanding
and other real estate owned
at end of period 0.39% 0.45% 0.58% 1.28% 0.76%
Accruing loans past due
90 days or more $ 329 $ 478 $ 59 $ 134 $ 170
- -----------------
(1) Interest income that could have been recorded during 1997 related to
nonaccrual loans was $132,000, none of which was included in interest income or
net income. All nonaccrual loans are secured.
(2) Net of unearned income.
<PAGE>
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 or had plans to
complete by year-end 1998. Some of the Company's in-house technology systems
have already been determined by testing to be Year 2000 ready and all other
significant in-house technology systems have been scheduled for testing.
In addition, the Company converted to a new outsourced core processing system
with M&I Data Services (M&I), a division of Marshall and Ilsley 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 is to be performed during early 1999 and the company
intends to continue to monitor M&I's program for compliance.
The Company began communicating with some customers in 1998 and has plans to
communicate with others in the future. 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 and adequate modification of its IT systems. However, 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 core
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 next 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.
To date, the Company has not identified a worse case scenario, that is
reasonably likely, that would call for the development of contingency plans.
Management intends to monitor progress of significant vendors and others for
circumstances that would change this current assessment.
<PAGE>
INTEREST RATE SENSITIVITY
- -------------------------
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.)
On December 31, 1998, 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 32.2 percent.
It has been the Company's experience that deposit balances for NOW and savings
accounts are stable and subjected to limited repricing when interest rates
increase or decrease within a range of 200 basis points. The Company's ALCO uses
model simulations to estimate and manage its interest rate sensitivity.
The Company has determined that an acceptable level of interest rate risk would
be for net interest income to fluctuate no more than 15 percent, given an
immediate change in interest rates (up or down) of 200 basis points. Based on
the Company's most recent ALCO model simulations, net interest income would
decline 11.9 percent if interest rates would immediately rise 200 basis points.
The Company does not presently use interest rate protection products in managing
its interest rate sensitivity.
Table 14:
INTEREST RATE SENSITIVITY(1)
(Dollars in thousands)
0-3 4-12 1-5
December 31, 1998 Months Months Years
- --------------------- -------------------------- ------------
Federal funds sold $ 60,590 $ 0 $ 0
Securities (2) 81,352 62,867 97,184
Loans (3) 117,642 148,359 273,152
Loans Available for sale 3,991 0 0
----- - -
Earning assets 263,575 211,226 370,336
Savings deposits (4) 388,601 0 0
Certificates of deposit 133,439 205,592 50,714
Borrowings 77,758 0 24,970
-------------------------- ------------
Interest bearing
liabilities 599,798 205,592 75,684
-------------------------- ------------
Interest sensitivity
gap $(336,223) $ 5,634 $ 294,652
========================== ============
Cumulative gap $(336,223) $(330,589) $(35,937)
========================== ============
Cumulative gap to
earning assets (%) (32.8) (32.2) (3.5)
Earning assets to
interest bearing
liabilities (%) 43.9 102.7 489.3
- --------------------
<PAGE>
INTEREST RATE SENSITIVITY(1)(con't)
(Dollars in thousands)
Over 5
December 31, 1997 Years Total
- --------------------- --------------------------
Federal funds sold $0 $ 60,590
Securities (2) 20,490 261,893
Loans (3) 159,979 699,132
Loans available for 0 3,991
sale
--------------------------
Earning assets 180,469 1,025,606
Savings deposits (4) 0 388,601
Certificates of deposit 0 389,745
Borrowings 0 102,728
--------------------------
Interest bearing
liabilities 0 881,074
--------------------------
Interest sensitivity
gap $180,469 $144,532
==========================
Cumulative gap $144,532
=============
Cumulative gap to
earning assets (%) 14.1
Earning assets to
interest bearing N/M
liabilities (%)
- ----------------------------------------------
(1) The repricing dates may differ from maturity dates for certain assets due
to prepayment assumptions.
(2) Securities are stated at amortized cost.
(3) Excludes nonaccrual loans.
(4) This category is comprised of NOW, savings and money market deposits. If
NOW and savings deposits (totaling $185,125,000) were deemed to be
repriceable in "4-12 months," the interest sensitivity gap and cumulative
gap would be $151,098,000 indicating 14.7% of total earning assets and
63.6% of earning assets to interest bearing liablilities for the "0-3
months" category.
N/M Not meaningful.
Table 16:
Maturity of Certificates of Deposit of $100,000 or More
(Dollars in thousands)
% of % of
December 31 1998 Total 1997 Total
- ------------------ --------- ---------- -------------------
Maturity Group:
Under 3 months $25,529 31.4% $16,903 26.0%
3 to 6 months 17,352 21.4 12,644 19.5
6 to 12 months 28,479 35.1 17,375 26.7
Over 12 months 9,813 12.1 18,101 27.8
--------- ---------- -------------------
Total $81,173 100.0% $65,023 100.0%
========= ========== ===================
<PAGE>
Securities
- ----------
Information relating to yields, maturities, carrying values, market values and
unrealized gains (losses) of the Company's securities is set forth in Table 15.
At December 31, 1998, the Company had $238,934,000 of securities held for sale
or 91.5 percent of total securities compared to $178,988,000 or 81.3 percent at
December 31, 1997. Total securities increased $41,033,000 or 18.6 percent in
1998, compared to prior year.
Management has lowered the total portfolio's interest rate risk by reducing the
average life of the portfolio. At December 31, 1998 and 1997, the average life
of the portfolio was 2.3 years and 2.6 years, respectively. The percentage of
adjustable and floating rate securities in the securities portfolio is 21.1
percent, compared to 28.5 percent last year. The held for sale portfolio
increased to an average life of 2.5 years from 2.1 years in 1997.
A total of $18,561,000 in securities will mature along with approximately $77
million of periodic principal payments from mortgage back securities in 1999.
Management believes a portion of these funds will be used to fund increases in
its consumer and commercial loan portfolio.
At December 31, 1998, the Company had unrealized net losses of $64,000 or 0.02
percent of amortized cost. At December 31, 1997, unrealized net losses were
$174,000 or 0.08 percent of amortized cost. While rates remained low in 1998 and
1997, a shifting U.S. Treasury yield curve caused a decrease in unrealized
depreciation.
Company management considers the overall quality of the securities portfolio to
be high. No securities are held which are not traded in liquid markets or that
meet the Federal Financial Institution Examination Counsel (FFIEC) definition of
a high risk investment.
<PAGE>
TABLE 15: Investment Securities Yield, Maturity and Market Value
U.S. Treasury and U.S.
Government Agencies
- -------------------------------- ----------------------------
(Dollars in thousands) Amortized Market Weighted
Cost Value Yield
- -------------------------------- ------------------ ---------
Maturity at December 31, 1998
Held for Sale:
Within one year $ 16,707 $ 16,847 6.24%
One to five years 21,802 21,828 5.54
Five to ten years
Over ten years
No contractual maturity
--------- -------- ---------
Total Value $ 38,509 $ 38,675 5.84%
========= ======== =========
Held for Investment:
Within one year
One to five years
Five to ten years
Over ten years
--------- -------- ---------
Total Value $0 $0 0
========= ======== =========
Maturity at December 31, 1997
Held for Sale $ 55,447 $ 55,411 5.28%
========= ======== =========
Held for Investment $ 9,908 $ 9,971 5.31%
========= ======== =========
(1) On a fully taxable equivalent basis.
- -----------------------------------
Investment Securities (con't)
Yield, Maturity and Market Value
(Dollars in thousands)
Mortgage Backed Securities
(Fixed)
- -------------------------------- ----------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------- ------------------ ---------
Maturity at December 31, 1998
Held for Sale:
Within one year $ 45,810 $ 45,880 5.82%
One to five years 77,213 77,310 6.20
Five to ten years 15,652 15,831 6.26
Over ten years 2,460 2,525 6.70
No contractual maturity
--------- -------- ---------
Total Value $141,135 $141,546 6.09%
========= ======== =========
Held for Investment
Within one year
One to five years $ 8,324 $ 8,534 6.66%
Five to ten years
Over ten years
--------- -------- ---------
Total Value $ 8,324 $ 8,534 6.66%
========== ======= =========
Maturity at December 31, 1997
Held for Sale $ 62,754 $ 62,580 6.11%
========== ======= =========
Held for Investment $16,104 $16,328 6.92%
(1) On a fully taxable equivalent basis.
- --------------------------
<PAGE>
Investment Securities (con't)
Yield, Maturity and Market Value
(Dollars in thousands)
Mortgage Backed Securities
(Adjustable)
- -------------------------------- ----------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------- ------------------ ---------
Maturity at December 31, 1998
Held for Sale:
Within one year $21,954 $21,941 5.74%
One to five years 5,242 5,109 5.17
Five to ten years 1,531 1,441 4.77
Over ten years
No contractual maturity
--------- -------- ---------
Total Value $28,727 $28,491 5.58%
========= ======== =========
Held for Investment:
Within one year
One to five years $ 2,617 $ 2,600 6.13%
Five to ten years
Over ten years
------------------ ---------
Total Value 2,617 2,600 6.13%
================== =========
Maturity at December 31, 1997 $34,165 $34,179 5.14%
Held for Sale
========= ======== =========
Held for Investment $ 3,289 $ 3,297 6.55%
(1) On a fully taxable equivalent basis.
- --------------------------------
Investment Securities (con't)
Yield, Maturity and Market Value
(Dollars in thousands)
Obligations of States and
Political Subdivisions (1)
- -------------------------------- ----------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------- ------------------ ---------
Maturity at December 31, 1998
Held for Sale:
Within one year
One to five years
Five to ten years
Over ten years $ 300 $ 240 9.85%
No contractual maturity
--------- -------- ---------
Total Value $ 300 $ 240 9.85%
========= ======== =========
Held for Investment:
Within one year $ 1,714 $ 1,739 9.21%
One to five years 5,522 5,696 8.88
Five to ten years 2,867 3,055 8.38
Over ten years 1,105 1,171 7.55
--------- -------- ---------
Total Value $11,208 $11,661 8.67%
========= ======== =========
Maturity at December 31, 1997
Held for Sale $ 0 $ 0 0%
========== ======= =========
Held for Investment $11,761 $12,177 8.71%
========== ======= =========
(1) On a fully taxable equivalent basis.
- --------------------------------
<PAGE>
Investment Securities (con't)
Yield, Maturity and Market Value
(Dollars in thousands)
Mutual Funds
- -------------------------------- ----------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------- ------------------ ---------
Maturity at December 31, 1998
Held for Sale:
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity $24,814 $23,823 5.27%
--------- -------- ---------
Total Value $24,814 $23,823 5.27%
========= ======== =========
Held for Investment:
Within one year
One to five years
Five to ten years
Over ten years
--------- -------- ---------
Total Value $ 0 $ 0 0%
========= ======== =========
Maturity at December 31, 1997
Held for Sale $24,914 $24,223 5.92%
========= ======== =========
Held for Investment $ 0 $ 0 0%
========= ======== =========
(1) On a fully taxable equivalent basis.
- ---------------------------------
Investment Securities (con't)
Yield, Maturity and Market Value
(Dollars in thousands)
Other (1)
- -------------------------------- ----------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------- ------------------ ---------
Maturity at December 31, 1998
Held for Sale
Within one year
One to five years
Five to ten years
Over ten years
No contractual maturity $6,159 $6,159 6.67%
--------- -------- ---------
Total Value $6,159 $6,159 6.67%
========= ======== =========
Held for Investment
Within one year
One to five years $ 100 $ 100 8.13%
Five to ten years
Over ten years
--------- -------- ---------
Total Value $ 100 $ 100 8.13%
========= ======== =========
Maturity at December 31, 1997
Held for Sale $2,593 $2,595 4.57%
========= ======== =========
Held for Investment $ 100 $ 100 8.13%
========= ======== =========
(1) On a fully taxable equivalent basis.
- ------------------------------
<PAGE>
Investment Securities (con't)
Yield, Maturity and Market Value
(Dollars in thousands)
Total
- -------------------------------- ----------------------------
Amortized Market Weighted
Cost Value Yield
- -------------------------------- ------------------ ---------
Maturity at December 31, 1998
Held for Sale
Within one year $ 84,471 $ 84,668 5.88%
One to five years 104,257 104,247 6.01
Five to ten years 17,183 17,272 6.12
Over ten years 2,760 2,765 7.04
No contractual maturity 30,973 29,982 5.55
--------- -------- ---------
Total Value $239,644 $238,934 5.93%
========= ======== =========
Held for Investment
Within one year $ 1,714 $ 1,739 9.21%
One to five years 16,563 16,930 7.33
Five to ten years 2,867 3,055 8.38
Over ten years 1,105 1,171 7.55
--------- -------- ---------
Total Value $ 22,249 $ 22,895 7.62%
========= ======== =========
Maturity at December 31, 1997
Held for Sale $179,873 $178,988 5.62%
================== =========
Held for Investment $ 41,162 $ 41,873 7.02%
================== =========
- --------------------------------------------------------------------------------
<PAGE>
December 31, 1998
Gross Gross
Amortized Unrealized Unrealized
(Dollars in Thousands) Cost Gains Losses
- -------------------------- --------- ----------- ----------
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $ 38,509 $ 295 $ (129)
Mortgage backed securities:
Fixed 141,135 657 (246)
Adjustable 28,727 10 (246)
Mutual funds 24,814 0 (991)
Obligations of states and
political subdivisions 300 0 (60)
Other securities 6,159 0 0
----- - -
$239,644 $ 962 $ (1,672)
======== ===== ========
Held for Investment:
U.S. Treasury and U.S.
Government agencies $ 0 $ 0 $ 0
Mortgage backed securities:
Fixed 8,324 222 (12)
Adjustable 2,617 6 (23)
Obligations of states and
political subdivisions 11,208 453 0
Other securities 100 0 0
--- - -
$ 22,249 $ 681 $ (35)
======== ===== ========
- ---(con't)---
December 31, 1998
Market Average Years
(Dollars in Thousands) Value to Maturity
- -------------------------- ---------- -----------
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $ 38,675 1.85
Mortgage backed securities:
Fixed 141,546 3.02
Adjustable 28,491 1.24
Mutual funds 23,823
Obligations of states and
political subdivisions 240 5.65
Other securities 6,159 *
----- ----
$238,934 2.30
========= ====
Held for Investment:
U.S. Treasury and U.S.
Government agencies $ 0
Mortgage backed securities:
Fixed 8,534 2.15
Adjustable 2,600 2.21
Obligations of states and
political subdivisions 11,661 2.82
Other securities 100 *
--- ---
$ 22,895 2.50
======== ====
- ----------
*Other Securities excluded from calculation average for total securities.
<PAGE>
- ----(con't)----
December 31, 1997
Gross Gross
Amortized Unrealized Unrealized
(Dollars in Thousands) Cost Gains Losses
- -------------------------- --------- ----------- ----------
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $ 55,447 $ 146 $ (182)
Mortgage backed securities:
Fixed 62,754 125 (299)
Adjustable 34,165 296 (299)
Mutual funds 24,914 20 (711)
Obligations of states and
political subdivisions
Other securities 2,593 2 -
----- - -
$179,873 $ 589 $ (1,474)
======== ===== ========
Held for Investment:
U.S. Treasury and U.S.
Government agencies $ 9,908 $ 63 $ 0
Mortgage backed securities:
Fixed 16,104 282 (58)
Adjustable 3,289 23 (15)
Obligations of states and
political subdivisions 11,761 416 0
Other securities 100 0 0
--- - -
$ 41,162 $ 784 $ (73)
======== ===== ========
- ---(con't)---
December 31, 1997
Market Average Years
(Dollars in Thousands) Value to Maturity
- -------------------------- ---------- -----------
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $ 55,411 1.50
Mortgage backed securities:
Fixed 62,580 1.57
Adjustable 34,179 9.03
Mutual funds 24,223
Obligations of states and
political subdivisions
Other securities 2,595 *
----- ----
$178,988 2.76
========= ====
Held for Investment:
U.S. Treasury and U.S.
Government agencies $ 9,971 0.48
Mortgage backed securities:
Fixed 16,328 2.42
Adjustable 3,297 3.53
Obligations of states and
political subdivisions 12,177 2.68
Other securities 100 *
--- ---
$ 41,873 2.11
======== ====
- ----------
*Other Securities excluded from calculation average for total securities.
<PAGE>
DEPOSITS
- --------
Total deposits increased $99,104,000 or 12.3 percent to $905,202,000 at December
31, 1998, versus prior year end. In comparison, total deposits declined
slightly, 0.7 percent to $806,098,000 at December 31, 1997, compared to one year
earlier at December 31, 1996.
A significant portion of the increase in deposits in 1998 resulted from growth
in the Company's northern markets, St. Lucie County and Indian River County,
where the PSHC acquisition and the opening of four new branches occurred.
Repurchase agreement balances increased $25,646,000 or 49.2 percent in 1998,
compared to a growth of $7,024,000 or 15.6 percent in 1997. Repurchase
agreements are offered by the Company's subsidiary bank to select customers who
wish to sweep excess balances on a daily basis for investment purposes.
LIQUIDITY MANAGEMENT
- --------------------
Contractual maturities for assets and liabilities are reviewed to meet current
and future liquidity requirements. Sources of liquidity, both anticipated and
unanticipated, are maintained through a portfolio of high quality marketable
assets, such as residential mortgage loans, investment securities, and federal
funds sold. The Company has access to federal funds lines of credit and is able
to provide short term financing of its activities by selling, under agreement to
repurchase, United States Treasury securities and securities of United States
Government agencies and corporations not pledged to secure public deposits or
trust funds. At December 31, 1998, the Company had available federal funds lines
of credit of $48,000,000. At December 31, 1998, the Company had $80,049,000 of
United States Treasury and Government agency securities and mortgage backed
securities not pledged and available for use under repurchase agreements. At
December 31, 1997, the amount of securities available and unpledged was
$68,298,000.
Liquidity, as measured in the form of cash and cash equivalents, totaled
$97,438,000 at December 31, 1998, compared to $64,436,000 at December 31, 1997.
Cash and equivalents vary with seasonal deposit movements and are generally
higher in the winter than in the summer, and vary with the level of principal
repayments occurring in the Company's investment securities portfolio and loan
portfolio.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
The Financial Accounting Standards Board (FASB) has issued Statements of
Financial Accounting Standards Number 133, Accounting for Derivative Instruments
and for Hedging Activities (SFAS 133), and Number 131, Disclosures about
Segments of an Enterprise (SFAS 131). The Company is required to adopt these
statements in the future. Management does not believe the adoption of SFAS 133
and 131 will have a significant impact on the Company's financial statements or
related disclosures.
EFFECTS ON INFLATION AND CHANGING PRICES
- ----------------------------------------
The financial statements and related financial data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general levels of inflation. However, inflation affects financial institutions'
increased cost of goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings, and stockholders' equity.
Mortgage originations and refinancings tend to slow as interest rates increase,
and likely will reduce the Company's earnings from such activities and the
income from the sale of residential mortgage loans in the secondary market.
<PAGE>
================================================================================
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement
================================================================================
1998 Quarters
-------------
(Dollars in thousands except per share Fourth Third Second First
data)
- ------------------------------------ --------- --------- ---------- ---------
Net interest income:
Interest income $18,204 $17,598 $17,248 $16,709
Interest expense 7,783 7,806 7,215 6,742
--------- --------- ---------- ---------
Net interest income 10,421 9,792 10,033 9,967
Provision for loan losses 360 450 450 450
--------- --------- ---------- ---------
Net interest income after provision
for losses 10,061 9,342 9,583 9,517
Noninterest income:
Service charges on deposit accounts 1,154 1,162 1,077 966
Trust fees 568 523 561 492
Other service charges and fees 235 464 505 451
Brokerage commissions and fees 411 422 667 605
Other 240 857 227 188
Securities gains (losses) 253 115 120 124
--------- --------- ---------- ---------
Total noninterest income 2,861 3,543 3,157 2,826
Noninterest expenses:
Salaries and wages 3,480 3,460 3,583 3,523
Employee benefits 653 726 874 866
Occupancy 772 794 782 781
Furniture and equipment 567 656 623 590
Marketing 489 465 489 521
Legal and professional fees 297 276 247 209
FDIC assessments 34 34 34 33
Foreclosed and repossessed asset
management and dispositions 30 117 90 61
Amortization of intangibles 167 169 167 168
Outsourced data processing costs 1,008 607 590 676
Merger related expenses 0 0 0 0
Other 1,306 1,724 1,544 1,439
--------- --------- ----------- --------
Total noninterest expenses 8,803 9,028 9,023 8,867
--------- --------- ----------- --------
Income before income taxes 4,119 3,857 3,717 3,476
Provision for income taxes 1,576 1,374 1,382 1,274
--------- --------- ----------- --------
Net income $2,543 $2,483 $2,335 $2,202
========= ========= =========== ========
PER COMMON SHARE DATA
Net income diluted $0.51 $0.48 $0.44 $0.42
Net income basic $0.51 $0.49 $0.45 $0.43
Cash dividends declared:
Class A common stock $0.24 $0.22 $0.22 $0.22
Market price Class A common stock:
Low close 23 29 3/4 35 3/4 34
High close 29 40 39 1/2 38 1/2
Bid price at end of period 28 29 1/2 38 1/2 36 1/2
<PAGE>
SELECTED QUARTERLY INFORMATION (con't)
- --------------------------------------
Quarterly Consolidated Income Statement
1997 Quarters
-------------
(Dollars in thousands except per share Fourth Third Second First
data)
- ------------------------------------ --------- --------- -------- ---------
Net interest income:
Interest income $16,472 $15,806 $16,237 $16,163
Interest expense 6,721 6,494 6,684 6,702
--------- --------- -------- ---------
Net interest income 9,751 9,312 9,553 9,461
Provision for loan losses 300 225 172 216
--------- --------- -------- ---------
Net interest income after provision
for losses 9,451 9,087 9,381 9,245
Noninterest income:
Service charges on deposit accounts 1,074 1,176 984 948
Trust fees 513 561 568 564
Other service charges and fees 446 389 441 412
Brokerage commissions and fees 391 440 510 512
Other 266 115 303 283
Securities gains (losses) 34 51 65 (102)
--------- --------- -------- ---------
Total noninterest income 2,724 2,732 2,871 2,617
Noninterest expenses:
Salaries and wages 3,194 3,293 3,378 3,338
Pension and other employee benefits 684 737 769 755
Occupancy 755 748 722 736
Furniture and equipment 604 561 562 540
Marketing 541 558 546 506
Legal and professional fees 233 253 247 185
FDIC assessments 34 34 36 32
Foreclosed and repossessed asset
management and dispositions 61 44 80 22
Amortization of intangibles 167 168 168 168
Outsourced data processing costs 515 419 591 601
Merger Related Expenses 0 0 1,467 75
Other 2,753 1,760 1,429 1,356
--------- --------- ------- ---------
Total noninterest expenses 9,541 8,575 9,995 8,314
--------- --------- ------- ---------
Income before income taxes 2,634 3,244 2,257 3,548
Provision for income taxes 961 1,182 820 1,288
--------- --------- -------- ---------
Net income $1,673 $2,062 $1,437 $2,260
========= ========= ======== =========
PER COMMON SHARE DATA
Net income diluted $0.32 $0.39 $0.28 $0.43
Net income basic $0.33 $0.40 $0.28 $0.44
Cash dividends declared:
Class A common stock $0.22 $0.20 $0.20 $0.20
Market price Class A common stock:
Low close 34 1/4 29 3/4 24 5/8 25 5/8
High close 39 1/2 38 1/2 30 1/2 29 1/2
Bid price at end of period 38 1/4 35 29 3/4 28
<PAGE>
================================================================================
SELECTED QUARTERLY INFORMATION
Consolidated Quarterly Average Balances, Yields and Rates (1)
================================================================================
1998 QUARTERS
Fourth Third
- --------------------------------- ----------- ------- ----------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- --------------------------------- ----------- ------- ----------------
Assets
Earning Assets
Securities
Taxable $ 253,904 6.04% $221,533 6.02%
Nontaxable 12,180 8.54 12,319 8.25
----------- ------- --------- ------
Total Securities 266,084 6.15 233,852 6.14
Federal funds sold and
other short term investments 18,548 4.75 10,991 5.56
Loans (2) 696,560 7.97 689,293 8.03
----------- ------- --------- ------
Total Earning Assets 981,192 7.40 934,136 7.52
Allowance for loan losses (6,147) (5,812)
Cash and due from banks 33,038 27,621
Bank premises and equipment 18,566 18,649
Other assets 14,264 14,878
----------- ------- --------- ------
$1,040,913 $ 989,472
=========== ======= ========= ======
Liabilities and Shareholders'
Interest bearing liabilities
NOW $59,506 1.76% $62,023 2.33%
Savings deposits 98,772 1.99 89,772 2.07
Money market accounts 206,352 2.03 189,232 2.23
Time deposits 399,623 5.17 409,829 5.28
Federal funds purchased and
other short term borrowings 42,804 3.69 14,733 4.12
Other borrowings 24,970 5.75 20,849 5.75
------ ---- ------ ----
TOTAL INTEREST BEARING
LIABILITIES 823,027 3.71 786,438 3.94
Demand deposits 123,159 115,438
Other liabilities 6.071 5,827
----- -----
Total 961,257 907,703
Shareholders' equity 79,656 81,769
------ ------
$1,040,913 $989,472
=========== ======= ======== =======
Interest expense as % of earning
assets 3.14% 3.32%
Net interest income as % of
earning assets 4.26 4.20
- -------------------------
<PAGE>
Consolidated Quarterly Average Balances, Yields and Rates (1) (con't)
1998 QUARTERS
Second First
- --------------------------------------------- ------- ----------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- --------------------------------------------- ------- ----------------
Assets
Earning Assets
Securities
Taxable $215,157 6.03% $206,331 6.11%
Nontaxable 12,682 8.39 11,760 8.37
--------- ------- --------- ------
Total Securities 227,839 6.17 218,091 6.23
Federal funds sold and
other short term investments 15,276 5.51 21,371 5.50
Loans (2) 659,870 8.27 631,005 8.41
--------- ------- --------- ------
Total Earning Assets 902,985 7.70 870,467 7.81
Allowance for loan losses (5,585) (5,403)
Cash and due from banks 28,178 28,102
Bank premises and equipment 18,763 18,500
Other assets 14,805 15,010
--------- ------- ----------------
$959,146 $926,676
========= ======= ================
Liabilities and Shareholders' Equity
Interest bearing liabilities
NOW $66,913 1.87% $64,614 1.94%
Savings deposits 83,913 1.91 87,995 1.95
Money market accounts 184,102 2.31 179,926 2.28
Time deposits 398,244 5.29 363,628 5.23
Federal funds purchased and
other short term borrowings 17,623 4.14 28,436 4.16
Other borrowings 0 0 0 0
--------- ------- -------- ----
TOTAL INTEREST BEARING
LIABILITIES 750,795 3.85 724,559 3.77
Demand deposits 119,572 114,487
Other liabilities 4,762 4,429
--------- ------- ----------------
Total 875,129 843,475
Shareholders' equity 84,017 83,201
--------- ------- ----------------
$959,146 $926,676
========= ======= ================
Interest expense as % of earning
assets 3.21% 3.14%
Net interest income as % of earning
assets 4.49% 4.67%
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- ------------------------
<PAGE>
Consolidated Quarterly Average Balances, Yields and Rates (1) (con't)
1997 QUARTERS
Fourth Third
- --------------------------------------------- ------- ----------------
Average Yield Average Yield
Balance /Rate Balance /Rate
- --------------------------------------------- ------- ----------------
Assets
Earning Assets
Securities
Taxable $188,710 6.09% $192,333 6.09%
Nontaxable 12,471 8.47 13,899 8.17
--------- ------- ------- --------
Total Securities 201,181 6.23 206,232 6.23
Federal funds sold and
other short term investments 31,150 5.53 16,829 5.52
Loans (2) 615,617 8.37 592,608 8.34
--------- ------- ------- --------
Total Earning Assets 847,948 7.75 815,669 7.73
Allowance for loan losses (5,353) (5,472)
Cash and due from banks 28,189 23,430
Bank premises and equipment 18,247 18,636
Other assets 16,209 16,531
--------- ------- -------- --------
$905,240 $868,794
========= ======= ======== =======
Liabilities and Shareholders' Equity
Interest bearing liabilities
NOW $59,363 1.99% $ 49,395 1.67%
Savings deposits 86,022 1.92 90,294 2.17
Money market accounts 168,846 2.21 168,451 2.24
Time deposits 358,536 5.27 356,410 5.26
Federal funds purchased and other
short term borrowings 29,326 4.11 11,415 4.14
Other borrowings 0 0
--------- ------- ----------------
Total Interest Bearing
Liabilities 702,093 3.80 675,965 3.81
Demand deposits 116,188 106,620
Other liabilities 4,975 4,533
--------- ------- ----------------
Total 823,256 787,118
Shareholders' equity 81,984 81,676
--------- ------- ----------------
$905,240 $868,794
========= ======= ================
Interest expense as % of earning
assets 3.14% 3.16%
Net interest income as % of earning
assets 4.60 4.57
- ------------------------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
- ------------------------
<PAGE>
Consolidated Quarterly Average Balances, Yields and Rates (1) (con't)
1997 QUARTERS
Second First
- --------------------------------------------- ------- ----------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- --------------------------------------------- ------- ----------------
Assets
Earning Assets
Securities
Taxable $208,484 6.25% $205,709 6.05%
Nontaxable 14,057 8.22 14,066 8.33
Total Securities 222,541 6.38 219,775 6.21
------- ---- ------- ----
Federal funds sold and
other short term investments 23,534 5.40 40,992 5.29
Loans (2) 591,649 8.45 583,342 8.59
------- ---- ------- ----
Total Earning Assets 837,724 7.82 844,109 7.81
Allowance for loan losses (5,703) (5,691)
Cash and due from banks 25,543 27,453
Bank premises and equipment 17,722 17,361
Other assets 17,105 16,537
------ ------
$892,391 $899,769
========= ======= ========= =======
Liabilities and Shareholders' Equity
Interest bearing liabilities
NOW $59,858 1.82% $64,052 1.81%
Savings deposits 94,165 2.33 94,985 2.38
Money market accounts 168,223 2.26 164,061 2.26
Time deposits 363,364 5.29 356,239 5.29
Federal funds purchased and other
short term borrowings 11,494 4.05 29,037 3.88
Other borrowings 0 0
------ ---- ------ ----
Total Interest Bearing
Liabilities 697,104 3.85 708,374 3.84
Demand deposits 108,544 106,118
Other liabilities 6,017 5,463
--------- ------- ------- ---------
Total 811,665 819,955
Shareholders' equity 80,726 79,814
--------- ------- ------- ---------
$892,391 $899,769
========= ======= ======== ========
Interest expense as % of earning
assets 3.20% 3.22%
Net interest income as % of earning
assets 4.62 4.59
- ------------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates
are calculated on an annualized basis.
(2) Nonaccrual loans are included in loan balances. Fees on loans are included
in interest on loans.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Management's Report On Responsibilities for Financial Reporting
- ---------------------------------------------------------------
Management is responsible for the preparation and content of the accompanying
financial statements and the other information contained in this report.
Management believes that the financial statements have been prepared in
conformity with appropriate generally accepted accounting principles applied on
a consistent basis and present fairly Seacoast Banking Corporation of Florida's
consolidated financial condition and results of operations. Where amounts must
be based on estimates and judgments, they represent the best estimates of
management.
Management maintains and relies upon an accounting system and related internal
accounting controls to provide reasonable assurance that transactions are
properly executed and recorded and that the company's assets are safeguarded.
Emphasis is placed on proper segregation of duties and authorities, the
development and dissemination of written policies and procedures and a complete
program of internal audits and management follow-up. In recognition of
cost-benefit relationships and inherent control limitations, some features of
the control systems are designed to detect rather than prevent errors,
irregularities and departures from approved policies and practices. Management
believes the system of controls has prevented or detected on a timely basis any
occurrences that could be material to the financial statements and that timely
corrective actions have been initiated when appropriate.
The accompanying 1998 financial statements have been audited by Arthur Andersen
LLP, certified public accountants. As part of their audit, Arthur Andersen LLP
evaluated the accounting systems and related internal accounting controls only
to the extent they deemed necessary to determine their auditing procedures.
Their audit would not necessarily disclose all internal accounting control
weaknesses because of the limited purpose of their evaluation. Although the
scope of Arthur Andersen LLP's audit did not encompass a complete review of and
they have not expressed an opinion on the overall system of internal accounting
control, they reported that their evaluation disclosed no conditions which they
consider to be material internal accounting control weaknesses.
The Board of Directors pursues its oversight role for accounting and internal
accounting control matters through an Audit Committee of the Board of Directors
comprised entirely of outside Directors. The Audit Committee meets periodically
with management, internal auditors and independent accountants. The independent
accountants and internal auditors have full and free access to the Audit
Committee and meet with it privately, as well as with management present, to
discuss internal control accounting and auditing matters.
/s/ Dale M. Hudson
- ------------------
Dale M. Hudson
President and Chief Executive Officer
/s/ William R. Hahl
- -------------------
William R. Hahl
Executive Vice President and Chief Financial Officer
/s/ John R. Turgeon
- -------------------
John R. Turgeon
Controller
<PAGE>
Report of Independent Certified Public Accountants
- --------------------------------------------------
Board of Directors and Shareholders
Seacoast Banking Corporation of Florida
Stuart, Florida
We have audited the accompanying consolidated balance sheets of Seacoast Banking
Corporation of Florida and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Seacoast Banking Corporation of
Florida and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Miami, Florida,
January 14, 1999
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars except per share data)
Year Ended December 31 1998 1997 1996
- ------------------------------- ------------ ------------ -----------
Interest on securities
Taxable $13,562 $12,129 $13,023
Nontaxable 704 777 869
Interest and fees on loans 54,617 50,252 45,901
Interest on federal funds sold 876 1,520 1,482
--- ----- -----
Total Interest Income 69,759 64,678 61,275
Interest on deposits 7,254 6,856 6,445
Interest on time certificates 20,603 18,928 17,849
Interest on borrowed money 1,689 817 758
----- --- ---
Total Interest Expense 29,546 26,601 25,052
------ ------ ------
Net Interest Income 40,213 38,077 36,223
Provision for loan losses 1,710 913 1,090
----- --- -----
Net Interest Income
After Provision for
Loan Losses 38,503 37,164 35,133
Noninterest income
Securities gains 612 48 76
Other 11,775 10,896 10,331
Noninterest expenses 35,721 36,425 31,768
------ ------ ------
Income Before Income Taxes 15,169 11,683 13,772
Provision for income taxes 5,606 4,251 4,933
----- ----- -----
Net Income $ 9,563 $ 7,432 $ 8,839
======= ======= =======
- ---------------------------------------------------------------------
Net income per share common stock
Diluted $1.84 $1.42 $1.71
Basic 1.88 1.45 1.73
Average shares outstanding
Diluted 5,192,417 5,251,712 5,180,984
Basic 5,093,032 5,128,208 5,096,856
- ----------
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars)
December 31 1998 1997
- ----------- ---- ----
Assets
Cash and due from banks $ 36,848 $ 28,336
Federal funds sold 60,590 36,100
Securities:
Securities held for sale (at market) 238,934 178,988
Securities held for investment
(market values:
1998 - $22,895 and 1997 - $41,873) 22,249 41,162
------ ------
Total Securities 261,183 220,150
Loans available for sale 3,991 15,020
Loans 701,550 613,930
Less: Allowance for loan losses 6,343 5,363
----- -----
Net Loans 695,207 608,567
Bank premises and equipment 17,762 18,324
Other real estate owned 288 536
Core deposit intangibles 1,304 1,640
Goodwill 3,282 3,582
Other assets 11,775 10,782
------ ------
Total Assets $1,092,230 $943,037
========== ========
Liabilities and Shareholders' Equity
Liabilities
Deposits
Demand deposits (noninterest
bearing) $ 126,856 $118,194
Savings deposits 388,601 328,980
Other time deposits 308,572 293,901
Time certificates of $100,000 or more 81,173 65,023
------ ------
Total Deposits 905,202 806,098
Federal funds purchased and securities
sold under agreement to repurchase,
maturing within 30 days 77,758 52,112
Other borrowings 24,970 0
Other liabilities 5,858 3,763
----- -----
1,013,788 861,973
Commitments and Contingencies (Notes I and N)
Shareholders' Equity
Preferred stock, par value $1.00
per share - authorized 1,000,000
shares, none issued or outstanding. 0 0
Class A common stock, par value $.10 per
share (Liquidation preference of $2.50
per share) authorized 10,000,000
shares, issued 4,807,377 and outstanding
4,566,392 shares in 1998 and 4,795,853
and outstanding 4,769,698 shares in 1997. 481 479
Class B common stock, par value $.10 per
share authorized 810,000 shares, issued
and outstanding 375,749 in 1998 and
377,273 shares in 1997. 37 38
Additional paid-in capital 27,439 27,256
Retained earnings 59,738 55,249
Less: Treasury Stock(240,985 shares
in 1998 and 26,155 shares in 1996),
at cost. (8,806) (1,289)
------ ------
78,889 81,733
Securities valuation allowance (447) (669)
---- ----
Total Shareholders' Equity 78,442 81,064
------ ------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,092,230 $943,037
========== ========
- ----------
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars)
Year Ended December 31 1998 1997 1996
- ---------------------- ---- ---- ----
Increase (Decrease) in Cash and
Cash Equivalents
Cash flows from operating activities
Interest received $69,675 $64,718 $61,092
Fees and commissions received 11,385 10,821 9,767
Interest paid (29,389) (26,932) (25,385)
Cash paid to suppliers and
employees (31,534) (34,366) (28,862)
Income taxes paid (5,074) (5,032) (5,488)
------ ------ ------
Net cash provided by operating
activities 15,063 9,209 11,124
Cash flows from investing activities
Maturities of securities held
for sale 141,048 26,581 46,987
Maturities of securities held
for investment 15,991 17,602 10,046
Proceeds from sale of
securities held for sale 105,989 73,302 53,758
Purchase of securities held for
sale (302,249) (106,861) (65,697)
Purchase of securities held for
investment (989) (5,928) (5,011)
Proceeds from sale of loans 8,312 33,274 85,467
Net new loans and principal
repayments (85,652) (87,168) (194,129)
Proceeds from sale of other
real estate owned 765 861 1,081
Additions to bank
premises and equipment (1,636) (3,005) (1,798)
Net change in other assets (943) (732) (339)
---- ---- ----
Net cash used in investing
activities (119,364) (52,074) (69,635)
Cash flows from financing activities
Net increase (decrease) in
deposits 99,093 (5,404) 46,301
Net increase in federal funds
purchased and repurchase
agreements 25,646 7,024 1,181
Net increase in other borrowings 24,970 0 0
Exercise of stock options 748 879 369
Treasury stock acquired (8,624) (1,207) 129
Dividends paid (4,530) (3,999) (2,730)
------ ------ ------
Net cash provided by financing
activities 137,303 (2,707) 45,250
------- ------ ------
Net increase (decrease) in cash
and cash equivalents 33,002 (45,572) (13,261)
Cash and cash equivalents at
beginning of year 64,436 110,008 123,269
------ ------- -------
Cash and cash equivalents at end
of year $97,438 $64,436 $110,008
======= ======= ========
- ----------
See Note P for supplemental disclosures. See notes to consolidated financial
statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
- -----------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Common Stock
---------------------------- ------------
Class A Class B Additional
(Dollars in thousands) Stock Stock Paid-in
Capital
- ---------------------- ------- ------- ----------
Balance at December 31, 1995 $462 $52 $26,904
Comprehensive Income:
Net Income
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B
common stock for
Class A common stock 3 (3)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans (1)
For stock options and awards 1
Exercise of stock
options and warrants 32
------- ------- ----------
Balance at December 31, 1996 465 49 26,936
Comprehensive Income:
Net Income
Unrealized gains on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B
common stock for
Class A common stock 11 (11)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans 6
For stock options and awards 1
Exercise of stock
options and warrants 3 313
- ---- ---
Balance at December 31, 1997 479 38 27,256
Comprehensive Income:
Net Income
Unrealized gains on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B
common stock for
Class A common stock 1 (1)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans (2)
For stock options and awards 2
Exercise of stock
options and warrants 1 183
-- --- ---
Balance at December 31, 1998 $481 $37 $27,439
==== === =======
- ----------
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity (con't)
(In thousands of Retained Treasury
dollars) Earnings Stock
- -------------------------- ---------- --------------
Balance at December 31, 1995 $46,281 $(1,676)
Comprehensive Income:
Net Income 8,839
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (2,730)
Exchange of Class B
common stock for
Class A common stock
Treasury stock acquired (16)
Common stock issued
from Treasury:
For employee benefit plans 62
For stock options and awards (300) 719
Exercise of stock
options and warrants
------ ----
Balance at December 31, 1996 52,090 (911)
Comprehensive Income:
Net Income 7,432
Unrealized gains on securities
Comprehensive Income
Cash Dividends Declared (3,999)
Exchange of Class B
common stock for
Class A common stock
Treasury stock acquired (1,420)
Common stock issued
from Treasury:
For employee benefit plans 58
For stock options and awards (274) 984
Exercise of stock
options and warrants
------ ------
Balance at December 31, 1997 55,249 (1,289)
Comprehensive Income:
Net Income 9,563
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (4,530)
Exchange of Class B
common stock for Class
A common stock
Treasury stock acquired (8,957)
Common stock issued
from Treasury:
For employee benefit plans 130
For stock options and awards (544) 1,310
Exercise of stock
options and warrants ------- -------
Balance at December 31, 1998 $59,738 $(8,806)
====== ======
- ----------
See notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity (con't)
- -------------------------------------------------------
Securities
Valuation
(In thousands of Equity Comprehensive
dollars) (Allowance) Income
- -------- ----------- ------
Balance at December 31, 1995 $(868)
Comprehensive Income:
Net Income $8,839
Unrealized losses on securities (766) (766)
-----
Comprehensive Income 8,073
Cash Dividends Declared
Exchange of Class B
common stock for Class
A common stock
Treasury stock acquired
Common stock issued
from Treasury:
For employee benefit plans
For stock options and awards
Exercise of stock
options and warrants ------
Balance at December 31, 1996 (1,634)
Comprehensive Income:
Net Income 7,432
Unrealized gains on
securities 965 965
------
Comprehensive Income 8,397
Cash Dividends Declared
Exchange of Class B
common stock for Class
A common stock
Treasury stock acquired
Common stock issued
from Treasury:
For employee benefit plans
For stock options and awards
Exercise of stock
options and warrants ----
Balance at December 31, 1997 (669)
Comprehensive Income:
Net Income 9,563
Unrealized gains on securities 222 222
------
Comprehensive Income 9,785
Cash Dividends Declared
Exchange of Class B
common stock for
Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards
Exercise of stock options
and warrants
Balance at December 31, 1998 $(447)
=====
- ----------------------------------------------
See notes to consolidated financial statements.
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Seacoast Banking Corporation of Florida and Subsidiaries
Note A - Significant Accounting Policies Principles of Consolidation: The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
Nature of Operations: The company is a single segment bank holding company whose
operations and locations are more fully described under the heading "Corporate
Profile" and "Markets Served" on the inside of the front cover and on page 1 of
this annual report.
Use of Estimates: The preparation of these financial statements
required the use of certain estimates by management in determining
the Company's assets, liabilities, revenues and expenses. Actual
results could differ from those estimates.
Securities: Securities that may be sold as part of the Company's asset/liability
management or in response to, or in anticipation of changes in interest rates
and resulting prepayment risk, or for other factors are stated at market value.
Such securities are held for sale with unrealized gains of losses reflected as a
component of Shareholders' Equity net of tax. Debt securities that the Company
has the ability and intent to hold to maturity are carried at amortized cost.
Interest income on securities, including amortization of premiums and accretion
of discounts is recognized using the interest method.
The Company generally anticipates prepayments of principal in the calculation of
the effective yield for collateralized mortgage obligations and mortgage backed
securities. The adjusted cost of each specific security sold is used to compute
gains or losses on the sale of securities.
Other Real Estate Owned: Other real estate owned consists of real estate
acquired in lieu of unpaid loan balances. These assets are carried at an amount
equal to the loan balance prior to foreclosure plus costs incurred for
improvements to the property, but no more than the estimated fair value of the
property.
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
principally by the straight line method, over the estimated useful lives as
follows: building - 25-40 years, furniture and equipment - 3-12 years. The
Company's policy is to capitalize certain costs related to externally developed
software systems utilized for internal use.
Purchase Method of Accounting: Net assets of companies acquired in purchase
transactions are recorded at fair value at date of acquisition. Core deposit
intangibles are amortized on a straight line basis over estimated periods
benefited, not exceeding 10 years. Goodwill is amortized on a straight line
basis over 15 years.
Mortgage Servicing Rights: The Company acquires mortgage servicing rights
through the origination of mortgage loans, and thee Company sells or securitizes
those loans with servicing rights retained. Under Statement of Financial
Accounting Standards No. 122, the Company allocates the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values.
The Company assesses its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. The portfolio is stratified by two
predominant risk characteristics: loan type and fixed versus variable interest
rate. Impairment, if any, is recognized through a valuation allowance for each
impaired stratum. Mortgage servicing rights are amortized in proportion to, and
over the period of, the estimated net future servicing income.
Revenue Recognition: Interest on loans is accrued based upon the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, interest credited to income in the
current year is reversed and interest accrued in the prior year is charged to
the allowance for loan losses.
Management may elect to continue the accrual of interest when the estimated net
realizable value of collateral is sufficient to cover the principal balance and
accrued interest.
<PAGE>
Provision for Loan Losses: The provision for loan losses is management's
judgement of the amount necessary to increase the allowance for loan losses to a
level sufficient to cover losses in the collection of loans.
Net Income Per Share: Net income per share is based upon the weighted average
number of shares of both Class A and Class B common stock (Basic) and
equivalents (Diluted) outstanding during the respective years.
Cash Flow Information: For the purposes of the consolidated statements of cash
flows, the Company considers cash and due from banks and federal funds sold as
cash and cash equivalents.
Business Combinations: The accompanying consilidated financial statements
include the financial position and results of operations on Port St. Lucie
National Bank Holding Corporation ("PSHC"), which the Company acquired on May
30, 1997. PSHC shareholders received 848,576 shares of Class A common stock for
all their issued and outstanding stock, warrants and options. This transaction
wasaccounted for under the pooling-of-interests method of accounting and,
accordingly, the consolidated financial statements have been restated as if the
Company had operated as one intity since inception.
----------
Note B - Cash, Dividend and Loan Restrictions
In the normal course of business, the Company and its subsidiary bank enter into
agreements, or are subject to regulatory agreements, that result in cash, debt
and dividend restrictions. A summary of the most restrictive items follows:
The Company's subsidiary bank is required to maintain average reserve balances
with the Federal Reserve Bank. The average amount of those reserve balances for
the year ended December 31, 1998 was approximately $4,700,000.
Under Federal Reserve regulation, the Company's subsidiary bank is limited as to
the amount it may loan to its affiliates, including the Company, unless such
loans are collateralized by specified obligations. At December 31, 1998, the
maximum amount available for transfer from the subsidiary bank to the Company in
the form of loans approximated 20 percent of consolidated net assets.
The approval of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the bank's
profits, as defined, for that year combined with its retained net profits for
the preceding two calendar years. Under this restriction the Company's
subsidiary bank can distribute as dividends to the Company in 1999, without
prior approval of the Comptroller of the Currency, approximately $10,200,000.
----------
Note C - Securities
The amortized cost and market value of securities at December 31, 1998, by
contractual maturity, are shown below. Expected aturities will differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment penalties.
Held for
Investment Held for Sale
-------------------------------
Amortized Market Amortized Market
(In thousands of dollars) Cost Value Cost Value
- ----------------------- ---------- -------- --------- ---------
Due in one year or less $ 1,714 $ 1,739 $16,707 $16,847
Due after one year
through five years 5,622 5,796 21,802 21,828
Due after five years
through ten years 2,867 3,055 0 0
Due after ten years 1,105 1,171 300 240
------ ------ ------ ------
11,308 11,761 38,809 38,915
Mortgage backed
securities 10,941 11,134 169,862 170,037
No contractual maturity 0 0 30,973 29,982
- - ------ ------
$ 22,249 $ 22,895 $239,644 $238,934
======== ======== ======== ========
<PAGE>
Proceeds from sales of securities during 1998 were $105,989,000 with gross gains
of $737,000 and gross losses of $125,000. During 1997, proceeds from sales of
securities were $73,302,000 with gross gains of $392,000 and gross losses of
$344,000. During 1996, proceeds from sales of securities were $53,758,000 with
gross gains of $154,000 and gross losses of $78,000.
Securities with a carrying value of $139,604,000 at December 31, 1998, were
pledged to secure United States Treasury deposits, other public deposits and
trust deposits.
The amortized cost and market value of securities at December 31, 1998 and 1997
follow:
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands of dollars) Cost Gains Losses Value
- -------------------------- --------- ----------- ---------- ---------
December 31, 1998:
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $38,509 $295 $(129) $38,675
Mortgage backed
securities: 169,862 667 (492) 170,037
Mutual funds 24,814 0 (991) 23,823
Obligations of states and
political subdivisions 300 0 (60) 240
Other securities 6,159 0 0 6,159
--------- ----------- ---------- ---------
$239,644 $962 $(1,672) $238,934
========= =========== ========== =========
Securities Held for
Investment 1998:
Mortgage backed securities $10,941 $228 $ (35) $ 11,134
Obligations of states and
political subdivisions 11,208 453 0 11,661
Other securities 100 0 0 100
--------- ----------- ---------- ---------
$ 22,249 $ 681 $ (35) $ 22,895
======== ===== ===== ========
December 31, 1997:
Securities Held for Sale:
U.S. Treasury and U.S.
Government agencies $ 55,447 $ 146 $ (182) $55,411
Mortgage backed securities 96,919 421 (581) 96,759
Mutual funds 24,914 20 (711) 24,223
Other securities 2,593 2 0 2,595
--------- ----------- ---------- ---------
$179,873 $ 589 $(1,474) $178,988
========= =========== ========== =========
Securities Held for
Investment:
U.S. Treasury & U.S.
Government agencies $ 9,908 $ 63 $ 0 $ 9,971
Mortgage backed securities 19,393 305 (73) 19,625
Obligations of states and
political subdivisions 11,761 416 0 12,177
Other securities 100 0 0 100
--------- ----------- ---------- ---------
$ 41,162 $ 784 $(73) $ 41,873
========= =========== ========== =========
----------
<PAGE>
Note D - Loans An analysis of loans follows:
December 31 (In 1998 1997
thousands of dollars)
- ----------------------- -------- --------
Real estate construction $ 22,877 $ 14,141
Real estate mortgage 574,895 494,632
Commercial and financial 31,908 31,239
Installment loans to
individuals 71,506 73,673
Other 364 245
----------- -----------
$701,550 $613,930
=========== ===========
One of the sources of the Company's business is loans to directors, officers and
other members of management. These loans are made on the same terms as all other
loans and do not involve more than normal risk of collectability. The aggregate
dollar amount of these loans was approximately $8,141,000 and $4,425,000 at
December 31, 1998 and 1997, respectively. During 1998 $5,840,000 of new loans
were made and repayments totaled $2,124,000.
See Page 19 of Management's Discussion and Analysis for information about
concentrations of credit risk of all financial instruments.
----------
<PAGE>
Note E - Impaired Loans and Allowance for Loan Losses
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures," as of January 1, 1995. These statements
require that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's original effective interest
rate. As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance.
The Company had previously measured the allowance for loan losses using methods
similar to those described in Statement of Financial Accounting Standard No.
114. As a result of adopting these statements, no additional allowance for loan
losses was required as of January 1, 1995.
The Company's recorded investment in impaired loans and related valuation
allowance are as follows:
December 31, 1998 1997
Recorded Valuation Recorded Valuation
(In thousands of dollars) Investment Allowance InvestmentAllowance
- ------------------------- -------------------- -------------------
Impaired loans:
Valuation allowance required $ 0 $ 0 $ 0 $ 0
No valuation allowance required 80 0 174 0
-- - --- -
$ 80 $ 0 $ 174 $ 0
==== === ====== =====
The valuation allowance is included in the allowance for loan losses. The
average recorded investment in impaired loans for the years ended December 31,
1998 and 1997 were $102,000 and $154,00000 respectively.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which time
payments received are recorded as reductions to principal. The Company
recognized interest income on impaired loans of $13,000 and $5,000 for the year
ended December 31, 1998 and 1997 respectively.
Transactions in the allowance for loan losses for the three years ended December
31, are summarized as follows:
(In thousands of dollars) 1998 1997 1996
- ------------------------- ---- ---- ----
Balance, beginning of year $5,363 $5,657 $4,893
Provision charged to operating expense 1,710 913 1,090
Charge offs (1,192) (1,554) (725)
Recoveries 462 347 399
--- --- ---
Balance, end of year $6,343 $5,363 $ 5,657
====== ====== =======
----------
<PAGE>
Note F - Bank Premises and Equipment Bank premises and equipment are summarized
as follows:
Accumulated
Depreciation Net
& Carrying
(In thousands of dollars) Cost Amortization Value
- ------------------------------------------- ------------------------
December 31, 1998
Premises (including land of
$2,967) $20,083 $6,862 $13,221
Furniture and equipment 14,918 10,377 4,541
---------- ------------------------
$35,001 $17,239 $17,762
========== ========================
December 31, 1997
Premises (including land of $19,645 $6,172 $13,473
$2,967)
Furniture and equipment 14,336 9,485 4,851
---------- ------------------------
$33,981 $15,657 $18,324
========== ========================
----------
Note G - Short Term Borrowings
All of the Company's short term borrowings were comprised of federal funds
purchased and securities sold under agreements to repurchase with maturities
primarily from overnight to seven days:
(In thousands of dollars) 1998 1997 1996
- ------------------------- ---- ---- ----
Maximum amount outstanding
at any month end $77,758 $52,112 $45,088
Average interest rate
outstanding at end of year 3.44% 4.30% 3.92%
Average amount outstanding $25,908 $20,294 $18,236
Weighted average interest rate 3.96% 4.03% 4.16%
- ----------------------------------------------------------------
On July 31, 1998, the Company acquired $24,970,000 in other borrowings,
$15,000,000 from the Federal Home Loan Bank and $9,970,000 from Donaldson,
Lufkin & Jenrette. At the date of acquisition, these borrowings had an average
duration of 2.7 years and a fixed rate of 5.75%.
The Company's subsidiary bank has unused lines of credit to purchase federal
funds from its correspondent banks of $48,000,000 at December 31, 1998.
----------
<PAGE>
Note H - Employee Benefits
The Company's profit sharing plan which covers substantially all employees after
one year of service includes a matching benefit feature for employees electing
to defer the elective portion of their profit sharing compensation. In addition,
amounts of compensation contributed by employees are matched on a percentage
basis under the plan. The profit sharing contributions charged to operations
were $859,000 in 1998, $814,000 in 1997, and $801,000 in 1996.
The Company's stock option and stock appreciation rights plans were approved by
the Company's shareholders on April 25, 1991 and April 25, 1996. The number of
shares of Class A common stock that may be purchased pursuant to the 1991 and
1996 plans shall not exceed 300,000 shares for each plan. The Company has
granted options on 250,000 shares and 284,000 shares, respectively through
December 31, 1998. Under both plans the option exercise price equals the Class A
common stock's market price on the date of grant. All options have a four year
vesting period and a contractual life of ten years.
The following table presents a summary of stock option activity for 1996, 1997
and 1998:
Weighted Weighted
Average Average
Number Fair Option Price Exercise
of Shares Value Per Share Price
---------- --------- ---------------------------
Options
outstanding,
January 1, 1996 300,500 $ 8.24 - 22.92 $15.36
Exercised (28,500) 11.00 - 19.00 11.78
Granted 47,000 $5.64 21.75 21.75
Cancelled (8,000) 17.50 17.50
---------------------------------------------
Options
outstanding,
December 31, 1996 311,000 8.24 - 22.92 16.59
Exercised (72,000) 8.24 - 22.92 12.04
Granted 51,000 8.97 25.50 25.50
Port St. Lucie
Exchange 51,000 8.24-22.92 10.57
Cancelled (5,000) 17.50-19.00 18.79
---------------------------------------------
Options
outstanding,
December 31, 1997 285,000 11.00-22.50 19.33
Exercised (40,000) 11.75-21.75 18.10
Granted 156,000 10.05 29.00 29.00
Canceled (23,000) 17.50-25.50 23.73
Options
outstanding,
December 31, 1998 378,000 11.00-29.00 23.14
=============================================
Options
exercisable,
December 31, 1996 159,000 $14.38
December 31, 1997 154,000 $16.91
December 31, 1998 146,000 $17.13
======================================================================
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------
Weighted
Average
Number of Remaining Weighted Number of Weighted
Range of Shares Contrac- Average Shares Average
Exercise Outstand- tual Life Exercise Exercis- Exercise
Prices ing in Years Price able Price
- ------------------------------------------------------------------------
$ 11.00 10,000 2.42 $ 11.00 10,000 $ 11.00
11.75 21,000 3.17 11.75 21,000 11.75
14.50 1,000 0.33 14.50 1,000 14.50
17.50 40,000 6.17 17.50 27,000 17.50
17.75 29,000 4.92 17.75 29,000 17.75
19.00 44,000 4.17 19.00 44,000 19.00
21.75 40,000 7.50 21.75 13,000 21.75
21.93 1,000 0.33 21.93 1,000 21.93
25.50 36,000 8.58 25.50 -- --
29.00 156,000 9.54 29.00 -- --
- ------------------------------------------------------------------------
378,000 6.84 $23.14 146,000 $17.13
========================================================================
The two stock option plans are accounted for under APB Opinion No. 25, and
therefore no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
Dollars in Thousands (except
per share data 1998 1997 1996
- -------------- ---- ---- ----
Net Income:
As Reported $9,563 $7,432 $8,839
Pro Forma 9,164 7,278 8,758
Per Share:
As Reported(Diluted) 1.84 1.42 1.71
Pro Forma 1.76 1.39 1.69
Because the statement has not been applied to options granted prior to January
1, 1995, the resulting pro forma compensation cost may not be representative of
that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996; risk-free interest rates of
5.65 percent for 1998, 6.90 percent for 1997 and 7.11 percent 1996; expected
dividend yield of 3.4 percent for the 1998 issue, 2.5 percent for the 1997 issue
and 3.3 percent for the 1996 issue; expected lives of 7 years; expected
volatility of 38.6 percent for 1998, 30.4 percent for 1997 and 20.8 percent for
1996.
The Company's defined benefit plan was terminated in 1996 and resulted in a
one-time charge of $607,000. The Company has received regulatory approval for
the termination and has no further obligation to the plan or its participants.
----------
<PAGE>
Note I - Lease Commitments
The Company is obligated under various noncancelable operating leases for
equipment, buildings and land. At December 31, 1998, future minimum lease
payments under leases with initial or remaining terms in excess of one year are
as follows:
(Dollars in Thousands)
- -------------------------------
1999 $ 1,445
2000 1,272
2001 1,259
2002 1,179
2003 897
Thereafter 7,326
-----
$ 13,378
========
Rent expense charged to operations was $1,474,000 in 1998, $1,382,000 in 1997,
and $1,278,000 in 1996. Certain leases contain provisions for renewal and change
with the consumer price index.
Certain property is leased from related parties of the Company at prevailing
rental rates. Lease payments to these individuals were $227,000 in 1998,
$217,000 in 1997 and $293,000 in 1996.
----------
Note J - Income Taxes
The provision for income taxes including tax effects of security transaction
gains (1998 - $224,000; 1997 - $18,000; 1996 - $28,000;)for the three years
ended December 31 are as follows:
Year Ended December 31
(Dollars in Thousands) 1998 1997 1996
- ------------------------------- ---------- ----------------------
Current
Federal $5,417 $3,438 $4,916
State 664 434 616
Deferred
Federal (423) 337 (529)
State (52) 42 (70)
--- -- ---
$5,606 $4,251 $4,933
====== ====== ======
Temporary differences in the recognition of revenue and expense for tax and
financial reporting purposes resulted in deferred income taxes as follows:
(Dollars in Thousands) 1998 1997 1996
- ---------------------- ---- ---- ----
Depreciation $(68) $148 $(147)
Allowance for loan losses (420) 134 (280)
Interest and fee income 80 81 68
Other real estate owned (57) 7 (24)
Pension 0 0 (229)
Other (10) 9 13
--- - --
$(475) $ 379 $ (599)
===== ===== =======
<PAGE>
The difference between the total expected tax expense (computed by applying the
U.S. Federal tax rate of 34 percent to pretax income) and the reported income
tax expense for the three years ended December 31, relating to income before
income taxes is as follows:
(Dollars in Thousands) 1998 1997 1996
- ---------------------- ---- ---- ----
34% of income before $5,157 $3,972 $4,682
income taxes
Increase (decrease)
resulting from the effects
of:
Tax-exempt interest on
obligations of states and
political subdivisions (239) (237) (262)
State income taxes (208) (162) (186)
Dividend exclusion (8) (8) (8)
Amortization of
intangibles 200 200 198
Other 92 10 (37)
-- -- ---
Federal tax provision 4,994 3,775 4,387
State tax provision 612 476 546
--- --- ---
Applicable income taxes $5,606 $4,251 $4,933
====== ====== ======
The net deferred tax assets (liabilities) at December 31 are comprised of the
following:
(Dollars in Thousands) 1998 1997
- ---------------------------------------- ---------------------
Allowance for loan losses $2,045 $ 1,625
Other real estate owned 89 32
Net unrealized securities losses 258 410
Other 61 39
-- --
Gross deferred tax assets 2,453 2,106
Depreciation (849) (917)
Interest and fee income (583) (503)
Other (23) (11)
--- ---
Gross deferred tax liabilities (1,455) (1,431)
Deferred tax asset valuation allowance 0 0
- -
Net deferred tax assets $ 998 $ 675
===== =====
The tax effects of unrealized gains (losses) included in the calculation of
comprehensive income income as presented in the statements of shareholder's
equity for the three years ended December 31, are as follows:
(Dollars in Thousands)
- ----------------------
1998 $ 152
1997 562
1996 (446)
----------
<PAGE>
Note K - Noninterest Income and Expenses
Details of income and expenses for the three years ended December 31 follow:
(Dollars in Thousands) 1998 1997 1996
- ---------------------------------------- --------- ---------- ---------
Noninterest income
Service charges on deposit accounts $4,359 $4,182 $3,435
Trust fees 2,144 2,206 2,069
Other service charges and fees 1,655 1,688 1,623
Brokerage commissions and fees 2,105 1,853 2,046
Other 1,512 967 1,158
--------- ---------- ---------
11,775 10,896 10,331
Securities gains 612 48 76
--------- ---------- ---------
$12,387 $10,944 $10,407
========= ========== =========
Noninterest expenses
Salaries and wages $14,046 $13,203 $12,447
Pension and other employee benefits 3,119 2,945 2,875
Occupancy 3,129 2,961 2,675
Furniture and equipment 2,436 2,267 2,038
Marketing 1,964 2,151 1,878
Legal and professional fees 1,029 918 1,046
FDIC assessments 135 136 634
Foreclosed and repossessed asset
management and dispositions 298 207 182
Amortization of intangibles 671 671 661
Outsourced data processing costs 2,881 2,126 1,594
Other 6,013 8,840 5,738
--------- ---------- ---------
$35,721 $36,425 $31,768
========= ========== =========
----------
Note L - Shareholders' Equity
The Company has reserved 100,000 Class A common shares for issuance in
connection with an employee stock purchase plan and 150,000 Class A common
shares for issuance in connection with an employee profit sharing plan. At
December 31, 1998, an aggregate of 35,236 shares and 52,422 shares,
respectively, have been issued as a result of employee participation in these
plans.
Holders of Class A common stock are entitled to one vote per share on all
matters presented to shareholders. Holders of Class B common stock are entitled
to 10 votes per share on all matters presented to shareholders. Class A and
Class B common stock vote together as a single class on all matters, except as
required by law or as provided otherwise in the Company's Articles of
Incorporation. Each share of Class B common stock is convertible into one share
of Class A common stock at any time prior to a vote of shareholders authorizing
a liquidation or dissolution of the Company.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital to average assets (as defined). Management believes, as of
December 31, 1998 that the Company meets all capital adequacy requirements to
which it is subject.
<PAGE>
As of December 31, 1998, the most recent notification from the Company's
regulator categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth below. There are no conditions or events since that
notification that management believes have changed the institution's category.
Minimum for
Capital Adequacy
Purposes
---------------------
(Dollars in Thousands) Amount Ratio Amount Ratio
- ---------------------- ------ ----- ------ -----
1998
Total Capital (to risk-
weighted assets) $79,953 12.01% $53,273 >=8.00%
Tier 1 Capital (to
risk-weighted assets) 73,610 11.05 26,637 >=4.00%
Tier 1 Capital (to adjusted
average assets) 73,610 7.10 41,451 >=4.00%
1997
Total Capital (to risk-
weighted assets) 81,351 14.66% $44,399 >=8.00%
Tier 1 Capital (to
risk-weighted assets) 75,988 13.69 22,200 >=4.00%
Tier 1 Capital (to adjusted
average assets) 75,988 8.44 35,935 >=4.00%
- -------(con't)------
Minimum To Be
Well Capitalized
Under Prompt
Corrective Action
Provisions
---------------------
(Dollars in Thousands) Amount Ratio
1998
Total Capital (to risk-
weighted assets) $66,591 >=10.00%
Tier 1 Capital (to
risk-weighted assets) 39,955 >= 6.00%
Tier 1 Capital (to adjusted
average assets) 51,814 >= 5.00%
1997
Total Capital (to risk-
weighted assets) 55,499 >=10.00%
Tier 1 Capital (to
risk-weighted assets) 33,299 >= 6.00%
Tier 1 Capital (to adjusted
average assets) 44,919 >= 5.00%
----------
<PAGE>
Note M - Seacoast Banking Corporation of Florida
(Parent Company Only) Financial Information
Balance Sheets
December 31
(Dollars in Thousands) 1998 1997
- ---------------------- ---- ----
Assets
Cash $ 10 $ 10
Securities purchased under
agreement to resell with
subsidiary bank, maturing
within 30 days 0 3,498
Securities held for sale 1,512 1,530
Investment in subsidiaries 78,431 75,543
Other assets 171 586
--- ---
$80,124 $81,167
======= =======
Liabilities and Shareholders'
Equity
Liabilities
Advances from bank subsidiary $ 1,542 $ 0
Other liabilities 140 103
Shareholders' Equity 78,442 81,064
------ ------
$80,124 $81,167
======= =======
<PAGE>
Statements of Cash Flows
Year Ended December 31
(Dollars in Thousands) 1998 1997 1996
- ---------------------- ---- ---- ----
Increase (Decrease) in Cash
Cash flows from operating
activities
Interest received $ 187 $ 243 $ 253
Dividends received 7,148 4,165 3,251
Other income received 0 13 30
Income taxes received (paid) 565 133 80
Cash paid to suppliers (534) (1,858) (700)
---- ------ ----
Net cash provided by operating
activities 7,366 2,696 2,914
Cash flows from investing
activities
Decrease (increase) in securities
purchased under agreement to
resell, maturing in 30 days 3,498 1,107 (833)
Decrease (increase) in deposit
with subsidiary bank 0 12 154
Proceeds from sale of premises 0 512 0
--- --- -
Net cash provided by (used in)
investing activities 3,498 1,631 (679)
Cash flows from financing
activities
Advance from subsidiary 1,542 0 0
Issuance of common stock - 0 0 33
Exercise of Stock Options 748 879 336
Treasury Stock (purchased)issued (8,624) (1,207) 129
Dividends paid (4,530) (3,999) (2,730)
------ ------ ------
Net cash used in financing
activities (10,864) (4,327) (2,232)
------- ------ ------
Net change in cash 0 0 3
Cash at beginning of year 10 10 7
-- -- -
Cash at end of year $ 10 $ 10 $ 10
==== ===== =====
Reconciliation of Net Income to
Cash Provided by Operating
Activities
Net income $ 9,563 $ 7,432 $8,839
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain on sale of premises 0 (44) 0
Equity in undistributed income
of subsidiaries (2,659) (4,249) (5,785)
Other net 462 (443) (140)
--- ---- ----
Net cash provided by operating
activities $7,366 $ 2,696 $2,914
====== ======= ======
<PAGE>
Statements of Income
Year Ended December 31
(Dollars in Thousands) 1998 1997 1996
- ------------------------- ---- ---- ----
Income
Dividends
Subsidiary $7,123 $4,133 $3,219
Other 33 32 33
Interest 182 239 253
Other 0 13 30
- -- --
7,338 4,417 3,535
Expenses 573 1,799 606
--- ----- ---
Income before income tax credit
and equity in undistributed
income of subsidiaries 6,765 2,618 2,929
Income tax credit 139 565 125
--- --- ---
Income before equity in
undistributed income of
subsidiaries 6,904 3,183 3,054
Equity in undistributed income of
subsidiaries 2,659 4,249 5,785
----- ----- -----
Net income $9,563 $7,432 $8,839
====== ====== ======
----------
Note N - Contingent Liabilities and Commitments with Off-Balance Sheet Risk
The Company and its subsidiary bank, because of the nature of their business,
are at all times subject to numerous legal actions, threatened or filed.
Management, based upon advice of legal counsel, does not expect that the final
outcome of threatened or filed suits will have a materially adverse effect on
its results of operations or financial condition.
The Company's subsidiary bank is a party to financial instruments with off
balance sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend
credit and standby letters of credit.
The subsidiary bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contract or notional amount of
those instruments. The subsidiary bank uses the same credit policies in making
commitments and standby letters of credit as it does for on balance sheet
instruments.
Contract or
Notional Amount
(Dollars in Thousands)
December 31 1998 1997
- ----------- ---- ----
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 94,665 $ 74,355
Standby letters of credit and
financial guarantees written:
Secured 864 1,115
Unsecured 375 141
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The subsidiary bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, equipment, and commercial and
residential real estate. Of the $94,665,000 outstanding at December 31, 1998,
$53,686,000 is secured by 1-4 family residential properties.
Standby letters of credit are conditional commitments issued by the subsidiary
bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The subsidiary bank holds collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for the above
secured standby letters of credit at December 31, 1998 and 1997 amounted to
$5,778,000 and $2,079,000, respectively.
----------
<PAGE>
Note O - Mortgage Servicing Rights, Net
The following is an analysis of the mortgage servicing rights, net at December
31:
(Dollars in Thousands) 1998 1997
- ---------------------- ---- ----
Balance at beginning of year $ 798 $ 546
Origination of mortgage 1,155
servicing rights 377
LESS: valuation allowance (148) 0
Amortization (252) (125)
---- ----
Total $ 1,553 $ 798
======= ======
December 31
(Dollars in Thousands) 1998 1997
- ---------------------- ---- ----
Unpaid principal
balance of serviced
loans for which
mortgage servicing
rights are
capitalized $ 128,324 $63,878
========= =======
Unpaid principal
balance of serviced
loans for which
there are no
servicing rights
capitalized. $ 48,657 $63,427
========= =======
The fair value of captitalized mortgage servicing rights was estimated using a
discounted cash flow model. Prepayment speed projections and market
assumptions regarding discount rate, servicing cost, escrow earnings credits,
payment float and advance cost interest rates were determined from guidelines
provided by a third-party mortgage servicing rights broker.
----------
Note P - Supplemental Disclosures for Consolidated Statement of Cash Flows
Reconciliation of Net Income to Net Cash
Provided by Operating Activities for the three years ended December 31:
(Dollars in Thousands) 1998 1997 1996
- ------------------------------------ ------------------------------
Net Income $ 9,563 $ 7,432 $8,839
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 3,020 2,707 2,653
Provision for loan losses 1,710 913 1,090
Provision (credit) for deferred
taxes (475) 379 (599)
Gain on sale of securities (612) (48) (76)
Gain on sale of loans (683) (202) (564)
Loss on sale and write
down of foreclosed assets 185 95 107
Gain/Loss on disposition of 105 (8) 18
equipment
Change in interest receivable (47) 32 (332)
Change in interest payable 157 (331) (333)
Change in prepaid expenses (814) 1 457
Change in accrued taxes 1,029 (1,154) 55
Change in other liabilities 1,925 (607) (191)
----- ----- ----
Total adjustments 5,500 1,777 2,285
----- ----- -----
Net cash provided by operating
activities $ 15,063 $9,209 $11,124
======== ====== =======
Supplemental disclosure of
non cash investing activities:
Market value adjustment to securities $ 178 $1,197 $ (1,517)
Transfers from loans to other real
estate owned 702 428 1,363
----------
<PAGE>
Note Q - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Cash and Cash Equivalents: The carrying amount was used as a reasonable estimate
of fair value.
Securities: The fair value of U.S. Treasury and U.S. Government agency, mutual
fund and mortgage backed securities are estimated based on bid prices published
in financial newspapers or bid quotations received from securities dealers.
The fair value of many state and municipal securities are not readily available
through market sources, so fair value estimates are based on quoted market price
or prices of similar instruments.
Loans: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, mortgage,
credit card, etc. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and nonperforming categories.
The fair value of loans, except residential mortgage and credit card loans, is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. For residential mortgage loans, fair value is
estimated by discounting contractual cash flows adjusting for prepayment
assumptions using discount rates based on secondary market sources adjusted to
reflect differences in servicing and credit costs. For credit card loans, cash
flows and maturities are based on contractual terms. At December 31, 1998, there
is no estimate of fair value of credit card loans due to the sale of the credit
card portfolio in 1998. The fair value estimate for credit card loans is based
on the carrying value of existing loans at December 31, 1998 and 1997. The fair
value estimate for credit card loans was based on the carrying value of existing
loans at December 31, 1997. The credit card loan portfolio was sold during 1998.
Deposit Liabilities: The fair value of demand deposits, savings accounts and
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit: The fair value of
commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the present creditworthiness
of the counterparties.
1998 1997
--------------------------
Carrying Fair Carrying Fair
(Dollars in Thousands) Amount Value Amount Value
- ---------------------- ------ ----- ------ -----
Financial Assets
Cash and cash
equivalents $ 97,438 $ 97,438 $64,436 $64,436
Securities 261,183 261,829 220,150 220,861
Loans, net 695,207 704,406 608,567 611,000
Financial Liabilities
Deposits 905,202 907,254 806,098 806,537
Borrowings 102,728 102,650 52,112 52,112
Contingent Liabilities
Commitments to extend
credit 0 947 0 744
Standby letters of
credit 0 18 0 13
----------
<PAGE>
Note R - Earnings Per Share
Year ended December 31 Net Per-share
(Dollars in Thousands) Income Shares Amount
- ---------------------- ------ ------ ------
1998:
Basic Earnings Per Share
Income available to common
shareholders $9,563 5,093,032 $1.88
Options issued to executives
(See Note H) 99,385
----- -------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $9,563 5,192,417 $1.84
====== ========= =====
1997:
Basic Earnings Per Share
Income available to common
shareholders $7,432 5,128,208 $1.45
-----
Options issued to executives
(See Note H) 123,504
----- -------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $7,432 5,251,712 $1.42
====== ========= =====
1996:
Basic Earnings Per Share
Income available to common
shareholders $8,839 5,096,856 $1.73
-----
Options issued executives
(See Note H) 84,128
----- -------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $8,839 5,180,984 $1.71
====== ========= =====
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report incorporated by reference in this Form 10-K of
Seacoast Banking Corporation of Florida, into the Company's previously filed
registration statements on Form S-8 (File Nos. 33-61925, 33-46504, 33-25627,
33-22846, and 333-70399).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida
March 29, 1999
