SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file
SEPTEMBER 30, 2000 No.0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact name of registrant as specified in its charter)
Florida 59-2260678
--------------------------------- -----------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart FL 34994
--------------------------------------- ---------------
(Address of principal executive offices) (Zip code)
(561) 287-4000
-------------------------------
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, Par Value $.10
------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of September 30, 2000:
Class A Common Stock, $.10 Par Value - 4,397,205 shares
-------------------------------------------------------
Class B Common Stock, $.10 Par Value - 359,310 shares
-----------------------------------------------------
<PAGE>
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
--------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Sept. 30, Dec. 31, Sept. 30,
(Dollars in thousands) 2000 1999 1999
------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 27,881 $ 39,992 $ 39,954
Federal funds sold 0 19,950 0
Securities:
Held for Sale (at market) 184,297 196,215 210,421
Held for Investment (market
values: $26,686 at September
30, 2000, $17,464 at December
31, 1999 & $19,208 at September
30,1999) 26,776 17,439 19,097
------------------------------------
TOTAL SECURITIES 211,073 213,654 229,518
Loans available for sale 2,066 938 1,207
Loans 834,689 778,164 762,517
Less: Allowance for loan losses (7,108) (6,870) (6,821)
------------------------------------
NET LOANS 827,581 771,294 755,696
Bank premises and equipment 17,071 16,557 16,852
Other assets 18,108 18,647 17,504
------------------------------------
$1,103,780 $1,081,032 $1,060,731
=====================================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 919,489 $ 905,960 $ 883,406
Federal funds purchased and
securities sold under agreements
to repurchase, maturing within
30 days 57,104 66,964 69,309
Other borrowings 40,000 24,970 24,970
Other liabilities 5,070 6,027 5,713
------------------------------------
1,021,663 1,003,921 983,398
SHAREHOLDERS' EQUITY
Preferred stock 0 0 0
Class A common stock 482 482 482
Class B common stock 36 36 36
Additional paid-in capital 27,814 27,785 27,370
Retained earnings 71,520 66,174 65,038
Less: Treasury stock (13,508) (11,640) (11,740)
----------------------------------------
86,344 82,837 81,186
Securities valuation allowance (4,227) (5,726) (3,853)
-----------------------------------------
TOTAL SHAREHOLDERS' EQUITY 82,117 77,111 77,333
-----------------------------------------
$1,103,780 $1,081,032 $1,060,731
=========================================
----------
Note: The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date. See notes to condensed
consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
--------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------
(Dollars in thousands, except per share
data) 2000 1999 2000 1999
--------------------------------------------------------------------------------
Interest and dividends on securities $ 3,452 $ 3,690 $10,296 $11,503
Interest and fees on loans 16,717 14,797 48,499 43,157
Interest on federal funds sold 37 2 360 324
-------------------- ------------------
TOTAL INTEREST INCOME 20,206 18,489 59,155 54,984
Interest on deposits 2,476 1,912 7,054 5,663
Interest on time certificates 6,214 4,931 17,092 14,800
Interest on borrowed money 1,230 818 3,353 2,044
-------------------- ------------------
TOTAL INTEREST EXPENSE 9,920 7,661 27,499 22,507
-------------------- ------------------
NET INTEREST INCOME 10,286 10,828 31,656 32,477
Provision for loan losses 150 150 450 510
-------------------- ------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,136 10,678 31,206 31,967
Noninterest income
Securities gains 2 9 4 328
Other income 3,221 2,820 9,896 9,013
-------------------- ------------------
TOTAL NONINTEREST INCOME 3,223 2,829 9,900 9,341
TOTAL NONINTEREST EXPENSES 8,496 8,821 26,243 27,285
-------------------- ------------------
INCOME BEFORE INCOME TAXES 4,863 4,686 14,863 14,023
Provision for income taxes 1,881 1,746 5,711 5,280
-------------------- ------------------
NET INCOME $ 2,982 $ 2,940 $ 9,152 $ 8,743
==================== ==================
--------------------------------------------------------------------------------
PER SHARE COMMON STOCK:
Net income basic $ 0.63 $ 0.61 $ 1.91 $ 1.80
Net income diluted 0.62 0.60 1.89 1.78
CASH DIVIDENDS DECLARED:
Class A 0.26 0.24 0.78 0.72
Class B 0.236 0.218 0.708 0.654
AVERAGE SHARES OUTSTANDING
Basic 4,761,592 4,833,610 4,797,778 4,844,662
Diluted 4,796,431 4,904,582 4,832,880 4,914,598
----------
See notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
--------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Nine Months Ended
September 30,
--------------------
(Dollars in thousands) 2000 1999
-------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received $ 58,306 $ 54,848
Fees and commissions received 9,711 9,330
Interest paid (27,236) (22,508)
Cash paid to suppliers and employees (26,429) (25,477)
Income taxes paid (5,522) (5,359)
-------------------
Net cash provided by operating activities 8,830 10,834
Cash flows from investing activities
Proceeds from maturity of securities held for sale 14,971 76,522
Proceeds from maturity of securities held for investment 3,804 3,118
Proceeds from sale of securities held for sale 125 57,309
Purchase of securities held for sale (765) (110,198)
Purchase of securities held for investment (13,147) 0
Proceeds from sale of loans 27,483 611
Net new loans and principal repayments (85,421) (59,408)
Proceeds from the sale of other real estate owned 665 390
Additions to bank premises and equipment (1,979) (596)
Net change in other assets 297 629
-------------------
Net cash used in investing activities (53,967) (31,623)
Cash flows from financing activities
Net increase (decrease) in deposits 13,551 (21,800)
Net decrease in federal funds purchased and
repurchase agreements (9,860) (8,449)
Net increase in other borrowings 15,030 0
Exercise of stock options 184 1,157
Treasury stock acquired (2,115) (4,161)
Dividends paid (3,714) (3,442)
-------------------
Net cash provided by (used in) financing activities 13,076 (36,695)
-------------------
Net decrease in cash and cash equivalents (32,061) (57,484)
Cash and cash equivalents at beginning of year 59,942 97,438
-------------------
Cash and cash equivalents at end of period $ 27,881 $ 39,954
===================
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
--------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Nine Months Ended
September 30,
--------------------
(Dollars in thousands) 2000 1999
-------------------------------------------------------------------------------
Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $ 9,152 $ 8,743
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,929 2,211
Provision for loan losses 450 510
Gains on sale of securities (4) (328)
Gains on sale of loans (360) 0
Losses on sale and writedown of foreclosed assets 12 88
Losses on disposition of fixed assets 15 20
Change in interest receivable (655) (41)
Change in interest payable 263 (1)
Change in prepaid expenses (723) (150)
Change in accrued taxes 476 164
Change in other liabilities (1,725) (382)
------------------
Total adjustments (322) 2,091
------------------
Net cash provided by operating activities $ 8,830 $10,834
==================
-------------------------------------------------------------------------------
Supplemental disclosure of noncash investing activities:
Transfers from loans to other real estate owned $ 433 $ 582
Transfers from loans to securities available for sale 0 24,936
Market value adjustment to securities 2,200 (5,335)
----------
See notes to condensed consolidated financial statement.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEACOAST
BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 2000, are not necessarily indicative of the results that may
be expected for the year ended December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
NOTE B - COMPREHENSIVE INCOME
------------------------------
Under FASB Statement of Financial Accounting Standard's No. 130, Reporting
Comprehensive Income, the Company is required to report a measure of all changes
in equity, not only reflecting net income but certain other changes as well. At
September 30, 2000 and 1999, comprehensive income was as follows:
Three Months Ended September 30,
(Dollars in thousands) 2000 1999
---------------------------------
Net income $ 2,982 $ 2,940
Unrealized gains (losses)-securities 1,273 (501)
------- --------
Comprehensive income $ 4,255 $ 2,439
======= ========
Nine Months Ended September 30,
(Dollars in thousands) 2000 1999
---------------------------------
Net income $ 9,152 $ 8,743
Unrealized gains (losses)-securities 1,499 (3,406)
------- --------
Comprehensive income $10,651 $ 5,337
======= ========
NOTE C - OTHER BORROWINGS
-------------------------
On July 31, 1998, the Company acquired $24,970,000 in other borrowings,
$15,000,000 from the Federal Home Loan Bank (FHLB) payable on November 12, 2009,
with interest payable quarterly at 6.10 percent, and $9,970,000 from Donaldson,
Lufkin & Jenrette (DLJ), payable on July 31, 2003, with interest payable
quarterly at 5.40 percent. The FHLB debt is subject to early termination in
accordance with terms of the agreement on November 12, 2004. The DLJ debt was
called and terminated on August 31, 2000. On March 9, 2000, an additional
borrowing from the FHLB for $25,000,000 was acquired, with a fixed term payable
on March 9, 2002, and interest payable monthly at 6.99 percent.
NOTE D - ACCOUNTING PRONOUNCEMENTS
----------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 does not change any of the accounting profession's existing
rules on revenue recognition but explains how the SEC staff applies rules to
transactions that existing rules do not specifically address. In June 2000, the
SEC issued SAB 101B to defer for six months the effective date of implementation
of SAB 101. The Company does not expect SAB 101 to have a material effect on its
financial position or results of operations.
In June 2000, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 138 (SFAS 138), "Accounting for Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133." The
amended SFAS 133 will be adopted by the Company on January 1, 2001. The adoption
will not have a material impact on the financial position or results of
operations of the Company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIRD QUARTER 2000
------------------
The following discussion and analysis is designed to provide a better
understanding of the significant factors related to the Company's results of
operations and financial condition. Such discussion and analysis should be read
in conjunction with the Company's Condensed Consolidated Financial Statements
and the notes attached thereto.
EARNINGS SUMMARY
----------------
Net income for the third quarter of 2000 totaled $2,982,000 or $0.62 per share
diluted, slightly lower than the $3,063,000 or $0.63 per share diluted recorded
in the second quarter of 2000 but higher than the $2,940,000 or $0.60 per share
diluted reported in the third quarter of 1999. While rising interest rates have
effected a reduction in net interest income, initiatives taken by the Company
over the past year to better align cost structures for higher performance and to
improve noninterest revenue have been offsetting.
Return on average assets was 1.07 percent and return on average shareholders'
equity was 13.80 percent for the third quarter of 2000, compared to second
quarter 2000's performance of 1.11 percent and 14.45 percent, respectively, and
the prior year's third quarter results of 1.10 percent and 14.40 percent,
respectively.
NET INTEREST INCOME
-------------------
Net interest income (fully taxable equivalent) decreased $564,000 or 5.2 percent
to $10,354,000 for the third quarter of 2000 compared to a year ago, and was
$359,000 lower than the second quarter of 2000. For the nine month period ending
September 30, 2000, net interest income (on a tax equivalent basis) declined
$884,000 or 2.7 percent year over year to $31,872,000.
In 2000, the Federal Reserve has increased short term interest rates 100 basis
points, with increases of 25 basis points in both February and March of 2000 and
another 50 basis points in May 2000. The Company, along with most other banks,
has seen its net interest margin decline over the last nine months as a result
of the Federal Reserve's actions. On a tax equivalent basis, the net interest
margin of 3.90 percent during the third quarter was 18 basis points lower than
for the second quarter of 2000 and 34 basis points lower when compared to first
quarter 2000's margin performance.
During the third quarter of 2000 (compared to the second quarter of 2000), the
cost of interest-bearing liabilities increased 25 basis points to 4.51 percent,
with rates for NOW, money market, time deposits, short term borrowings (entirely
composed of repurchase agreements with customers and federal funds purchased),
and other borrowings increasing 22, 15, 24, 34 and 15 basis points,
respectively. The rate for NOW accounts increased as a result of the success of
a new product called Investor NOW offered at a higher rate than the Company's
other NOW products. Certificates of deposit grew $5.0 million in the third
quarter, compared to $20.5 million in the second quarter and $11.4 million in
the first quarter of 2000, reflecting higher interest rates paid and customer
desire to shift deposit balances from lower interest bearing core deposits into
higher yielding time deposits. The increase in the rate for short term
borrowings (all maturing overnight) reflects a full quarter impact of the
Federal Reserve's 50 basis point increase in May. The termination (call) of a
$10 million borrowing with a rate of 5.40 percent with Donaldson, Lufkin &
Jenrette (DLJ) at the end of August 2000 effected an increase in the cost for
other borrowings.
With regards to interest earned, the yield on earning assets for the third
quarter of 2000 increased 4 basis points to 7.64 percent, compared to 7.60
percent for the second quarter of 2000. Increases in the yield on loans of 3
basis points to 8.01 percent, the yield on securities of 5 basis points to 6.30
percent, and the yield on federal funds sold of 71 basis points to 6.67 percent
was enhanced by a changing earning assets mix (with a $9.1 million growth in
average loans during the third quarter). The growth in loans, while favorable,
was somewhat slower than increases recorded in the second and first quarter of
2000 of $30.3 million and $21.5 million, respectively. In part, the slower
growth in loans is due to seasonal impacts the Company typically encounters in
the summer in Florida and the actions taken by the Federal Reserve to increase
rates to slow economic activity. Higher rates are likely to continue to impact
loan growth over the remainder of 2000 and into 2001.
For the third quarter a year ago, the net interest margin was 4.33 percent. The
yield on average earning assets was 7.36 percent and rate on interest bearing
liabilities was 3.64 percent.
Average earning assets for the third quarter of 2000 are $54,153,000 or 5.4
percent higher when compared to the prior year's third quarter. Average loan
balances grew $76,485,000 or 10.1 percent to $830,947,000, average investment
securities decreased $24,410,000 or 9.9 percent to $221,894,000 and average
federal funds sold increased from $130,000 to $2,208,000.
<PAGE>
The mix of earning assets and interest bearing liabilities impacts the margin.
Third Quarter
2000 1999
---- ----
Average Earning Asset Mix:
Loans 78.8% 75.4%
Securities 21.0 24.6
Federal Funds Sold 0.2 --
Average Interest Bearing Liabilities Mix:
NOW, Savings, Money Market Deposits 42.6% 44.6%
Certificates of Deposit 48.3 47.6
Federal Funds Purchased and
Repurchase Agreements 3.8 4.8
Other Borrowings 5.3 3.0
Loans (the highest yielding component of earning assets) as a percentage of
average earning assets increased 3.4 percent compared to a year ago, while
average securities (a lower yielding component) declined 3.6 percent. Average
certificates of deposit (a higher cost component of interest-bearing
liabilities) as a percentage of interest-bearing liabilities increased 0.7
percent when compared to the third quarter in 1999, and borrowings (including
federal funds purchased, sweep repurchase agreements with customers of the
Company's bank subsidiary, and borrowings from the Federal Home Loan Bank and
DLJ) increased 2.3 percent. Lower cost core interest bearing deposits (NOW,
savings and money market deposits) remained relatively level, growing $234,000
or 0.1 percent to $372,506,000 year over year, but declined 2.0 percent as a
component of interest-bearing liabilities. Favorably affecting the Company's
deposit mix, noninterest bearing demand deposits grew $1,206,000 or 0.9 percent
to $137,097,000.
PROVISION FOR LOAN LOSSES
-------------------------
A provision of $150,000 was recorded in the third quarter of this year, an
identical amount to that provided in the second and first quarter of 2000. In
1999, a provision of $150,000 was recorded in the third quarter and provisioning
totaled $510,000 for the nine months ended September 30, 1999. Net charge-offs
for the first nine months increased from $32,000 last year to $212,000 in 2000.
Net charge-offs annualized as a percent of average loans totaled 0.03 percent
for the first nine months of 2000, compared to 0.01 percent for the same period
in 1999. These ratios are much better than the banking industry as a whole.
Management determines the provision for loan losses charged to operations by
constantly analyzing and monitoring delinquencies, nonperforming loans and the
level of outstanding balances for each loan category, as well as the amount of
net charge-offs, and by estimating losses inherent in its portfolio. While the
Company's policies and procedures used to estimate the monthly provision for
loan losses charged to operations are considered adequate by management and are
reviewed from time to time by the Office of the Comptroller of the Currency
(OCC), there exist factors beyond the control of the Company, such as general
economic conditions both locally and nationally, which make management's
judgment as to the adequacy of the provision necessarily approximate and
imprecise.
NONINTEREST INCOME
------------------
Noninterest income, excluding gains and losses from securities sales, totaled
$3,221,000 for the third quarter, an increase of $401,000 or 14.2 percent from
the same period last year.
Revenue from brokerage activities totaling $510,000 was $106,000 or 26.2 percent
higher during the third quarter of 2000 than for 1999, and trust (fiduciary)
income increased $51,000 or 8.0 percent to $686,000. The financial markets
during 2000 have been in turmoil as a result of an uncertain economic growth
rate and fear of further Federal Reserve actions or increased inflation. While
third quarter's investment management revenue results are favorable and the
Company hopes to see similar or improved results in the fourth quarter, these
uncertainties may impact growth in revenue from investment products. Service
charges on deposits increased $48,000 or 3.9 percent to $1,269,000 and other
fees and income (on an aggregate basis) increased $196,000 or 35.0 percent to
$756,000 during the third quarter of 2000 as compared to a year ago. The Company
benefited from an increase in debit card interchange income of $37,000, an
additional $72,000 in fees from the Company's division known as Seacoast Marine
Finance that originates loans for third party lenders, and an increase of
$28,000 in mortgage banking business fees. Seacoast Marine Finance is
headquartered in Fort Lauderdale, Florida and commenced operations in early
February with an experienced, seasoned team of marine lending professionals.
Seacoast Marine Finance's marketing emphasis is for marine loans of $200,000 and
greater, with the majority of business volumes generated for other financial
institutions.
Noninterest income, excluding gains and losses from securities sales, totaled
$9,896,000 for the nine month period ending September 30, 2000, an increase of
$883,000 or 9.8 percent from the same period last year. As in the quarterly
comparison, the most significant increase was a $535,000 increase in aggregate
other fees and income, which included $129,000 in debit card interchange income,
$290,000 from fees earned by Seacoast Marine Finance loans which totaled $20.8
million, and $73,000 derived from the origination of residential mortgages for
other lenders totaling $6.3 million. This was followed by increases of $182,000
and $192,000 in brokerage commissions and trust income, respectively.
<PAGE>
NONINTEREST EXPENSES
--------------------
When compared to 1999, noninterest expenses for the third quarter decreased by
$325,000 or 3.7 percent to $8,496,000. The Company's overhead ratio decreased
from 67.8 percent in the third quarter of 1998 to 64.2 percent a year ago for
the third quarter to 62.6 percent this year for the third quarter. This is
reflective of initiatives to reduce overhead costs, particularly staffing, and
streamlined operational and procedural changes implemented throughout 1999.
Compared to the third quarter of 1999, salaries and wages decreased $189,000 or
5.6 percent to $3,173,000. Employee benefits declined $241,000 or 25.8 percent
to $694,000. Most of the decrease in wage and benefit costs is related to lower
performance award incentive accruals for 2000 and lower group health claims in
2000.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
increased $92,000 or 7.2 percent to $1,363,000, versus third quarter results
last year. Most of the increase resulted from higher lease payments for premises
and additional computer equipment. In July 2000, the Company's bank subsidiary
opened a new branch on U.S. 1 in northern Martin County near the St. Lucie
County line, at the same time closing a branch in St. Lucie County approximately
one-half mile from the new branch. Enhanced exposure and higher traffic is
expected at the new location on an out parcel in front of a major Florida
grocery store. Overlap during the quarter of leasing for the newly opened and
closed branch offices as well as costs associated with the new Seacoast Marine
Finance office in Ft. Lauderdale accounted for a portion of the increase.
Increased computer hardware costs during the quarter included the installation
of new imaging equipment in September 2000 to more efficiently handle
transactional information, produce customer statements and perform research. It
is anticipated that use of this technology will provide a reduction in staffing
and postage, and will enhance customer service, further establishing the
Company's banking subsidiary's "Supercommunity Bank".
Costs associated with foreclosed and repossessed asset management and
disposition decreased $27,000 to $47,000 in the third quarter of 2000, a
reflection of low nonperforming asset balances (see "Nonperforming Assets").
Legal and professional costs decreased $145,000 or 33.6 percent to $287,000 in
the third quarter, compared to a year ago. Most of this decrease was related to
expense in 1999 for hiring an outside consulting service to partner with the
Company in assessing a number of internal processes for overhead improvement and
revenue enhancement.
Marketing expenses, including sales promotion costs, ad agency production and
printing costs, newspaper and radio advertising, and other public relations
costs associated with the Company's efforts to market products and services,
increased by $19,000 to $416,000 in the third quarter of 2000 when compared to a
year ago.
Outside data processing costs totaled $1,032,000 for the third quarter of 2000,
an increase of $120,000 from a year ago. The Company utilizes a third party for
its core data processing system. Outsourced data processing costs are directly
related to the number of transactions processed, which can be expected to
increase as the Company's business volumes grow and new products such as bill
pay, internet banking, etc. become more popular and the number of customer
accounts increases.
Noninterest expenses for the nine month period ending September 30, 2000 were
$1,042,000 or 3.8 percent lower and totaled $26,243,000. Changes year over year
were as follows and result from the same causes as discussed for the third
quarter: 1) salaries and wages declined $826,000 or 7.8 percent, 2) employee
benefits fell $433,000 or 15.1 percent, 3) occupancy and furniture and equipment
expenses increased $197,000 or 5.1 percent, on an aggregate basis, 4) costs
associated with foreclosed and repossessed asset management and dispositions
decreased $77,000 to $90,000, 5) legal and professional fees declined $333,000
or 28.0 percent, 6) marketing expenses were $10,000 or 0.8 percent higher, 7)
outsourced data processing costs increased $346,000 or 12.6 percent, and 7) the
other expense category grew $51,000 or 1.3 percent.
INCOME TAXES
------------
Income taxes as a percentage of income before income taxes were 38.4 percent for
the first nine months of this year, compared to 37.7 percent in 1999. The
increase in rate reflects a higher rate of provisioning for state income taxes,
a result of lower state intangible tax credits, lower tax-exempt interest income
and the Company's effective federal tax rate increasing due to adjusted income
before taxes exceeding $10 million.
<PAGE>
FINANCIAL CONDITION
CAPITAL RESOURCES
-----------------
The Company's ratio of average shareholders' equity to average total assets
during the first nine months of 2000 was 7.75 percent, compared to 7.51 percent
during the first nine months of 1999. The Company has an approved share
repurchase plan which allows for up to 300,000 shares to be repurchased over the
next several years.
The risk-based capital minimum ratio for total capital to risk-weighted assets
for "well-capitalized" financial institutions is 10 percent. At September 30,
2000, the Company's ratio was 12.08 percent.
LOAN PORTFOLIO
--------------
Most of the Company's loan activity is with customers primarily located within
its defined market area known as the Treasure Coast of Florida. This area is
located on the southeastern coast of Florida above Palm Beach County and extends
north to Brevard County.
Total loans (net of unearned income and excluding the allowance for loan losses)
were $834,689,000 at September 30, 2000, $72,172,000 or 9.5 percent more than at
September 30, 1999, and $56,525,000 or 7.3 percent more than at December 31,
1999.
At September 30, 2000, the Company's mortgage loan balances secured by
residential properties amounted to $464,673,000 or 55.7 percent of total loans
(versus 54.8 percent a year ago). The next largest concentration was loans
secured by commercial real estate totaling $190,485,000 or 22.8 percent of total
loans (versus 23.8 percent a year ago). The Company was also a creditor for
consumer loans to individual customers totaling $91,146,000, primarily secured
by motor vehicles and including marine loans totaling approximately $13.4
million generated by the Company's subsidiary bank's newly created lending
division, Seacoast Marine Finance, headquartered in Fort Lauderdale, Florida.
Commercial loans of $36,900,000, home equity lines of credit of $13,175,000, and
construction loans of $38,025,000 were outstanding as well at September 30,
2000.
During the first nine months of 2000, $6.3 million in residential mortgage loans
and $20.8 million in marine loans (generated by Seacoast Marine Finance) were
originated for other lenders. Over the past twelve months a total of $29.2
million were produced.
The Treasure Coast is a residential community with commercial activity centered
in retail and service businesses serving the local residents. Therefore, real
estate mortgage lending is an important segment of the Company's lending
activities. Exposure to market interest rate volatility with respect to mortgage
loans is managed by attempting to match maturities and re-pricing opportunities
for assets against liabilities, when possible. At September 30, 2000,
approximately $190.4 million or 41.0 percent of the Company's residential
mortgage loan balances were adjustable.
Of the $72.1 million of new residential loans originated in 2000, $54.7 million
were adjustable and $17.4 million were fixed rate. Loans secured by residential
mortgages having fixed rates totaled $274.3 million at September 30, 2000, of
which 15- and 30-year mortgages totaled $116.9 million and $109.6 million,
respectively. Remaining fixed rate balances were comprised of home improvement
loans with maturities less than 15 years.
The majority of all loans and commitments for one-to-four family residential
properties and commercial real estate are generally secured with first mortgages
on property with the amount loaned at inception to the fair value of the
property not to exceed 80 percent. A majority of residential real estate loans
are made upon terms and conditions that would make such loans eligible for
resale under Federal National Mortgage Association (FNMA) or Federal Home Loan
Mortgage Corporation (FHLMC) guidelines. The Company's historical charge-off
rates for residential real estate loans have been minimal, with $50,000 in net
charge-offs for the first nine months of 2000 compared to $104,000 for all of
1999. The Company considers residential mortgages less susceptible to adverse
effects from a downturn in the real estate market.
Fixed rate and adjustable rate loans secured by commercial real estate totaled
$115.9 million and $74.6 million, respectively, at September 30, 2000, compared
to $118.0 million and $63.3 million, respectively, a year ago. The Company
manages its risk related to the local real estate market by limiting the
aggregate size of its commercial real estate portfolio and by making commercial
real estate loans primarily on owner occupied properties.
At September 30, 2000, the Company had commitments to make loans (excluding
unused home equity lines of credit) of $68,922,000, compared to $72,813,000 at
September 30, 1999.
<PAGE>
ALLOWANCE FOR LOAN LOSSES
-------------------------
Net losses on installment loans totaled $207,000 for the first nine months of
2000, compared to net losses of $176,000 in 1999. Current and historical credit
losses arising from real estate lending transactions continue to compare
favorably with the Company's peer group. Net losses arising from residential
real estate of $50,000 were recorded in the first nine months, an identical
amount to a year ago. Charge-offs and recoveries for commercial real estate
loans netted to zero and net recoveries for credit cards of $63,000 were
recorded in 2000 for the first nine months, compared with the prior year when
net recoveries of $64,000 and $62,000, respectively, were reported. Net
charge-offs for commercial loans of $18,000 in the first nine months of 2000
compared to $68,000 in recoveries in 1999. As a result of the sale of the credit
card portfolio in 1998, the Company eliminated its exposure to future credit
card losses and continues to recover amounts on losses recorded prior to the
sale.
The ratio of the allowance for loan losses to net loans outstanding was 0.85
percent at September 30, 2000. This ratio was 0.89 percent at September 30,
1999. The allowance for loan losses as a percentage of nonaccrual loans and
loans 90 days or more past due was 309.7 percent at September 30, 2000, compared
to 289.4 percent at the same date in 1999.
NONPERFORMING ASSETS
--------------------
At September 30, 2000, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned (OREO) was 0.29 percent, compared to
0.35 percent one year earlier.
At September 30, 2000, accruing loans past due 90 days or more totaled $52,000
and OREO totaled $154,000. In 1999 on the same date, loans totaling $112,000
were past due 90 days or more and OREO balances of $392,000 were outstanding.
Nonaccrual loans totaled $2,243,000 at September 30, 2000, compared to a balance
of $2,245,000 at September 30, 1999. All of the nonaccrual loans outstanding at
September 30, 2000 were performing with respect to payments, with the exception
of eight loans aggregating to $1,424,000. The performing loans were placed on
nonaccrual status because the Company has determined that the collection of
principal or interest in accordance with the terms of such loans is uncertain.
Of the amount reported in nonaccrual loans at September 30, 2000, 95 percent is
secured with real estate, 1 percent is guaranteed by the Small Business
Administration ("SBA"), the remainder by other collateral. Management does not
expect significant losses for which an allowance for loan losses has not been
provided associated with the ultimate realization of these assets.
SECURITIES
----------
Debt securities that the Company has the intent and ability to hold to maturity
are carried at amortized cost. All other securities are carried at market value
and are available for sale. At September 30, 2000, the Company had $191,100,000
or 87.7 percent of total securities available for sale and securities held to
maturity were carried at an amortized cost of $26,777,000, representing 12.3
percent of total securities.
The Company's securities portfolio decreased $16,686,000 or 7.1 percent from
September 30, 1999. The funds were utilized to fund loan growth.
Management controls the Company's interest rate risk by maintaining a low
average duration for the securities portfolio and with securities returning
principal monthly which can be reinvested. At September 30, 2000, the duration
of the portfolio was 3.2 years, the same as a year ago.
Gross unrealized securities losses totaled $6,894,000 at September 30, 2000,
compared to $5,938,000 at September 30, 1999. The Federal Reserve Bank increased
short term interest rates 75 basis points in 1999 and 100 basis points in 2000.
Over the last twelve months interest rates for instruments with maturities over
2 years did not increase significantly as a result of the Federal Reserve Bank's
actions. 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 Council
(FFIEC) definition of a high risk investment.
DEPOSITS / BORROWINGS
---------------------
Total deposits increased $36,083,000 or 4.1 percent to $919,489,000 at September
30, 2000, compared to one year earlier. Lower cost interest bearing deposits
(NOW, savings and money market deposits) declined $1,236,000 or 3.4 percent to
$359,064,000, while all other types of deposits grew. Certificates of deposit
increased $29,553,000 or 7.6 percent to $420,328,000 over the past twelve months
and noninterest bearing demand deposits increased $7,766,000 or 5.9 percent to
$132,331,000.
Repurchase agreement balances increased $5,795,000 or 23.8 percent to
$30,104,000 at September 30, 2000 from a year ago and federal funds purchased
decreased $18,000,000 to $27,000,000. 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. Other borrowings increased $15,030,000
to $40,000,000, reflecting funding of $25.0 million obtained through the FHLB
for a term of two years at 6.99 percent in mid-March 2000 and the termination
(call) of $9,970,000 at 5.40 percent by DLJ at the end of August 2000.
<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).
Based on the Company's most recent asset/liability management committee (ALCO)
modeling, the Company had a negative gap position based on contractual
maturities and prepayment assumptions for the next twelve months, with a
negative cumulative interest rate sensitivity gap as a percentage of total
earning assets of 28.4 percent.
The Company uses model simulation to manage and measure its interest rate
sensitivity. The Company has determined that an acceptable level of interest
rate risk would be for net interest income to fluctuate no more than 6 percent
given an immediate change in interest rates (up or down) of 200 basis points.
The Company's most recent ALCO model simulation indicated net interest income
would decline 2.4 percent if interest rates would immediately rise 200 basis
points. It has been the Company's experience that non-maturity core deposit
balances are stable and subjected to limited re-pricing when interest rates
increase or decrease within a range of 200 basis points.
The Company does not presently use interest rate protection products in the
management of interest rate sensitivity.
LIQUIDITY MANAGEMENT
--------------------
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected future liquidity requirements. Sources of
liquidity, both anticipated and unanticipated, are maintained through a
portfolio of high quality marketable assets, such as residential mortgage loans,
securities available for sale and federal funds sold. The Company has access to
federal funds lines of credit and is able to provide short term financing of its
activities by selling, under an agreement to repurchase, United States Treasury
and Government agency securities not pledged to secure public deposits or trust
funds. At September 30, 2000, the Company had available lines of credit of
$103,500,000. The Company also had $114,576,000 of United States Treasury and
Government agency securities and mortgage backed securities not pledged and
available for use under repurchase agreements. At September 30, 1999, the amount
of securities available and not pledged was $98,388,000.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $27,881,000 at September 30, 2000 as compared to
$39,954,000 at September 30, 1999. A decline of $11,916,000 in balances
maintained at the Federal Reserve was the primary cause. Balances maintained at
the Federal Reserve are based upon the classification of certain deposit
balances as transactional and can vary considerably during monitored two-week
periods. Cash and cash equivalents also change with seasonal deposit movements
and are generally higher in the winter than in the summer, and vary with the
level of principal repayments and investment activity occurring in the Company's
securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing activities
(primarily in loans and securities) and from financial activities (primarily
through deposit generation and short term borrowings) exceeded cash flows from
operations. In 2000, the cash flow from operations of $8,830,000 was $2,004,000
lower than during the same period of 1999. Cash flows from investing and
financing activities reflect the increase in loan and deposit balances
experienced.
IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------
The financial statements and related financial data presented herein have been
prepared in accordance with U.S. generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and liabilities of
a financial institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance than the
general level of inflation. However, inflation affects financial institutions'
increased cost of goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings, and shareholders' equity.
Mortgage originations and re-financings 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>
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
--------------------------------------------------------------
Certain of the matters discussed under the caption "Management's Discussion and
Analysis" and elsewhere in this Quarterly Report may constitute forward-looking
statements for purposes of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Seacoast Banking Corporation of Florida
to be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. The Company's actual
results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including, without
limitation: the effect of future economic conditions; governmental monetary and
fiscal policies, as well as legislative and regulatory changes; the risk of
changes in interest rates on the level and composition of deposits, loan demand,
and the values of loan collateral, securities, and interest rate risks; the
effects of competition from other commercial banks, thrifts, mortgage banking
firms, consumer finance companies, credit unions, securities brokerage firms,
insurance companies, money market and other mutual funds and other financial
institutions operating locally, regionally, nationally and internationally,
together with such competitors offering banking products and services by mail,
telephone and computer and the Internet; the effect of the Year 2000 problem on
the Company, including such problems at the Company's vendors, counter-parties
and customers; and the failure of assumptions underlying the establishment of
reserves for possible loan losses. All written or oral forward-looking
statements attributable to the Company are expressly qualified in their entirety
by these Cautionary Statements.
<PAGE>
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three month period ended
September 30, 2000.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEACOAST BANKING CORPORATION OF FLORIDA
November 14, 2000 /s/ Dennis S. Hudson, III
----------------- ----------------------------------
DENNIS S. HUDSON, III
President & Chief Executive Officer
November 14, 2000 /s/ William R. Hahl
----------------- ---------------------------------
WILLIAM R. HAHL
Executive Vice President & Chief Financial Officer
