SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file
JUNE 30, 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
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(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 June 30, 2000:
Class A Common Stock, $.10 Par Value - 4,401,228 shares
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Class B Common Stock, $.10 Par Value - 360,585 shares
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<PAGE>
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
June 30, 2000, December 31, 1999 and
June 30, 1999 4
Condensed consolidated statements of income -
Three months and six months ended June 30,
2000 and 1999 5
Condensed consolidated statements of cash flows -
Six months ended June 30, 2000 and 1999 6
Notes to condensed consolidated financial
statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 14
Part II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Article 9 - Financial Data Schedule 17
<PAGE>
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
--------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
June 30, December 31, June 30,
(Dollars in thousands) 2000 1999 1999
-----------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 30,988 $ 39,992 $ 25,602
Federal funds sold 0 19,950 0
Securities:
Held for Sale (at market) 188,806 196,215 229,054
Held for Investment (market values:
$27,661 at June 30, 2000,
$17,464 at December 31, 1999
& $19,918 at June 30, 1999) 27,815 17,439 19,670
-----------------------------------
TOTAL SECURITIES 216,621 213,654 248,724
Loans available for sale 1,474 938 0
Loans 827,437 778,164 747,038
Less: Allowance for loan losses (7,103) (6,870) (6,658)
-----------------------------------
NET LOANS 820,334 771,294 740,380
Bank premises and equipment 17,455 16,557 17,144
Other assets 18,008 18,647 17,992
-----------------------------------
$1,104,880 $1,081,032 $1,049,842
===================================
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 939,028 $ 905,960 $ 920,784
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 31,218 66,964 21,930
Other borrowings 49,970 24,970 24,970
Other liabilities 5,443 6,027 6,309
-----------------------------------
1,025,659 1,003,921 973,993
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 27,809 27,785 27,664
Retained earnings 69,773 66,174 63,249
Less: Treasury stock (13,379) (11,640) (12,230)
-----------------------------------
84,721 82,837 79,201
Securities valuation allowance (5,500) (5,726) (3,352)
-----------------------------------
TOTAL SHAREHOLDERS'EQUITY 79,221 77,111 75,849
-----------------------------------
$1,104,880 $1,081,032 $1,049,842
===================================
----------
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 Six Months Ended
June 30, June 30,
----------------- -----------------
(Dollars in thousands, except per share
data) 2000 1999 2000 1999
----------------------------------------------------------- -----------------
Interest and dividends on securities $ 3,448 $ 3,915 $ 6,844 $ 7,813
Interest and fees on loans 16,284 14,493 31,782 28,360
Interest on federal funds sold 164 64 323 322
----------------- -----------------
TOTAL INTEREST INCOME 19,896 18,472 38,949 36,495
Interest on deposits 2,411 1,894 4,578 3,751
Interest on time certificates 5,675 4,980 10,878 9,869
Interest on borrowed money 1,169 599 2,123 1,226
----------------- -----------------
TOTAL INTEREST EXPENSE 9,255 7,473 17,579 14,846
----------------- -----------------
NET INTEREST INCOME 10,641 10,999 21,370 21,649
Provision for loan losses 150 0 300 360
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,491 10,999 21,070 21,289
Noninterest income
Securities gains 1 92 2 319
Other income 3,232 3,066 6,675 6,193
----------------- -----------------
TOTAL NONINTEREST INCOME 3,233 3,158 6,677 6,512
TOTAL NONINTEREST EXPENSES 8,741 9,239 17,747 18,464
----------------- -----------------
INCOME BEFORE INCOME TAXES 4,983 4,918 10,000 9,337
Provision for income taxes 1,920 1,826 3,830 3,534
----------------- -----------------
NET INCOME $ 3,063 $ 3,092 $ 6,170 $ 5,803
================= =================
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PER SHARE COMMON STOCK:
Net income basic $ 0.64 $ 0.64 $ 1.28 $ 1.20
Net income diluted 0.63 0.63 1.27 1.18
CASH DIVIDENDS DECLARED:
Class A 0.26 0.24 0.52 0.48
Class B 0.236 0.218 0.472 0.436
--------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING
Basic 4,800,023 4,809,822 4,816,071 4,850,280
Diluted 4,832,070 4,886,147 4,851,305 4,919,688
----------
See notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
--------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Six Months
Ended June 30,
------------------
(Dollars in thousands) 2000 1999
-------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Interest received $38,383 $36,458
Fees and commissions received 6,543 6,401
Interest paid (17,322) (14,950)
Cash paid to suppliers and employees (17,327) (16,790)
Income taxes paid (3,666) (3,509)
-------- --------
Net cash provided by operating activities 6,611 7,610
Cash flows from investing activities
Proceeds from maturity of securities held for sale 8,161 61,726
Proceeds from maturity of securities held for investment 2,768 2,557
Proceeds from sale of securities held for sale 125 49,137
Purchase of securities held for sale (592) (105,475)
Purchase of securities held for investment (13,147) 0
Proceeds from sale of loans 19,144 0
Net new loans and principal repayments (69,073) (41,851)
Proceeds from the sale of other real estate owned 565 59
Additions to bank premises and equipment (1,865) (385)
Net change in other assets 291 526
------- -------
Net cash used in investing activities (53,623) (33,706)
Cash flows from financing activities
Net increase in deposits 33,089 15,579
Net decrease in federal funds purchased and
repurchase agreements (35,746) (55,828)
Net increase in other borrowings 25,000 0
Exercise of stock options 184 601
Treasury stock acquired (1,985) (3,801)
Dividends paid (2,484) (2,291)
------- -------
Net cash provided by (used in) financing activities 18,058 (45,740)
------- -------
Net decrease in cash and cash equivalents (28,954) (71,836)
Cash and cash equivalents at beginning of year 59,942 97,438
------- -------
Cash and cash equivalents at end of period $30,988 $25,602
======= =======
Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $ 6,170 $ 5,803
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,273 1,513
Provision for loan losses 300 360
Gains on sale of securities (2) (319)
Gains on sale of loans (249) 0
Losses on sale and writedown of foreclosed assets 1 58
Losses on disposition of fixed assets 15 9
Change in interest receivable (434) (12)
Change in interest payable 257 (104)
Change in prepaid expenses (20) (283)
Change in accrued taxes 337 177
Change in other liabilities (1,037) 408
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Total adjustments 441 1,807
------- -------
Net cash provided by operating activities $ 6,611 $ 7,610
======= =======
-------------------------------------------------------------------------------
Supplemental disclosure of noncash investing activities:
Transfers from loans to other real estate owned $ 302 $ 423
Transfers from loans to securities available for sale 0 24,936
Market value adjustment to securities 150 (4,539)
----------
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 six month period
ended June 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
June 30, 2000 and 1999, comprehensive income was as follows:
Three Months Ended June 30,
(Dollars in thousands) 2000 1999
--------------------------
Net income $ 3,063 $ 3,092
Unrealized gains (losses)-securities 284 (2,330)
--- ------
Comprehensive income $ 3,347 $ 762
======= =====
Six Months Ended June 30,
2000 1999
--------------------------
Net income $ 6,170 $ 5,803
Unrealized gains(losses)-securities 226 (2,905)
--- ------
Comprehensive income $ 6,396 $ 2,898
======= =======
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. Each debt is subject to early termination in
accordance with terms of the agreement as follows: FHLB on November 12, 2004 and
DLJ on July 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 PRONOUNCEMENT
---------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB101), "Revenue Recognition in Financial
Statements." SAB101 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 SAB101B to defer for six months the effective date of implementation
of SAB101. The Company does not expect SAB101 to have a material effect on its
financial position or results of operations.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SECOND 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 second quarter of 2000 totaled $3,063,000 or $0.63 per share
diluted, compared to $3,107,000 or $0.64 per share diluted recorded in the first
quarter of 2000 and $3,092,000 or $0.63 per share diluted reported in the second
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 1.11 percent and return on average shareholders'
equity was 14.45 percent for the second quarter of 2000, compared to first
quarter 2000's performance of 1.15 percent and 14.75 percent, respectively, and
the prior year's second quarter results of 1.14 percent and 15.40 percent,
respectively.
NET INTEREST INCOME
-------------------
Net interest income (fully taxable equivalent) decreased $378,000 or 3.4 percent
to $10,713,000 for the second quarter of 2000 compared to a year ago, and was
$92,000 lower than the first quarter of 2000. For the six month period ending
June 30, 2000, net interest income (on a tax equivalent basis) declined $320,000
or 1.5 percent year over year to $21,518,000. Given the current initiatives of
the Federal Reserve to slow the economic growth through continued rate
increases, future net interest income growth may be impacted as was the second
quarter of 2000. Further erosion could occur should loan demand become slower as
a result of higher interest rates.
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. This has impacted the Company's margin
performance. On a tax equivalent basis the net interest margin of 4.08 percent
during the second quarter of 2000 was 16 basis points lower than for the first
quarter of 2000. The cost of interest-bearing liabilities increased 30 basis
points to 4.26 percent from the first quarter of 2000, with rates for savings,
money market accounts, certificates of deposit, short term borrowings (entirely
composed of repurchase agreements with customers and federal funds purchased),
and other borrowings increasing 44, 10, 27, 45 and 19 basis points,
respectively. Rates for savings accounts increased as a result of the success of
two savings products called Grand Savings and Grand Savings Plus which were
offered at higher rates than the Company's regular savings account. Certificates
of deposit grew $20.5 million in the second quarter, compared to $11.4 million
in the first quarter of 2000 and $12.3 million for the prior twelve months,
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 rate for other borrowings reflects a full quarter
impact of actions taken in the first quarter of 2000 when the Company extended
an existing $15 million borrowing from the Federal Home Loan Bank (FHLB) to a
term of ten years at a slightly higher rate and borrowed an additional $25
million from the FHLB in March 2000 for a term of two years at 6.99 percent.
With regards to interest earned, the yield on earning assets for the second
quarter of 2000 increased 10 basis points to 7.60 percent, compared to the first
quarter of 2000. Increases in the yield on loans of 9 basis points to 7.98
percent, the yield on securities of 7 basis points to 6.25 percent, and the
yield on federal funds sold of 25 basis points to 5.96 percent was enhanced by a
changing earning assets mix (with a $30.3 million growth in average loans during
the second quarter). This compares to a growth in loans of $21.5 million in the
first quarter.
For the second quarter a year ago, the net interest margin was 4.38 percent. The
yield on average earning assets was 7.35 percent and rate on interest bearing
liabilities was 3.55 percent.
Average earning assets for the second quarter of 2000 are $47,115,000 or 4.7
percent higher when compared to the prior year's second quarter. Average loan
balances grew $84,471,000 or 11.5 percent to $821,854,000, average investment
securities decreased $43,005,000 or 16.1 percent to $223,677,000 and average
federal funds sold increased $5,649,000 or 104.4 percent to $11,062,000.
<PAGE>
The mix of earning assets and interest bearing liabilities impacts the margin.
Second Quarter
2000 1999
---- ----
Average Earning Asset Mix:
Loans 77.8% 73.1%
Securities 21.2 26.4
Federal Funds Sold 1.0 0.5
Average Interest Bearing Liabilities Mix:
NOW, Savings, Money Market Deposits 44.3% 45.4%
Certificates of Deposit 46.7 48.7
Federal Funds Purchased and
Repurchase Agreements 3.3 3.0
Other Borrowings 5.7 2.9
Loans (the highest yielding component of earning assets) as a percentage of
average earning assets increased 4.7 percent compared to a year ago, while
average securities (a lower yielding component) declined 5.2 percent. Average
certificates of deposit (a higher cost component of interest-bearing
liabilities) as a percentage of interest-bearing liabilities decreased 2.0
percent when compared to the second quarter in 1999, but borrowings (including
federal funds purchased, sweep repurchase agreements with customers of the
Company's bank subsidiary, and borrowings from the FHLB and Donaldson, Lufkin &
Jenrette) increased 3.1 percent. While lower cost core interest bearing deposits
(NOW, savings and money market deposits) grew $4,310,000 or 1.1 percent to
$387,468,000 year over year, these deposits declined 1.1 percent as a component
of interest-bearing liabilities. Favorably affecting the Company's deposit mix,
noninterest bearing demand deposits grew $8,706,000 or 6.2 percent to
$149,518,000.
PROVISION FOR LOAN LOSSES
-------------------------
A provision of $150,000 was recorded in the second quarter of this year, an
identical amount to that provided in the first quarter of 2000. In 1999, no
provision was recorded in the second quarter while a provision of $360,000 was
added in the first quarter. Net charge-offs for the first six months increased
from $45,000 last year to $68,000 in 2000. Net charge-offs annualized as a
percent of average loans totaled 0.02 percent for the first six 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.
<PAGE>
NONINTEREST INCOME
------------------
Noninterest income, excluding gains and losses from securities sales, totaled
$3,232,000 for the second quarter, an increase of $166,000 or 5.4 percent from
the same period last year.
Revenue from brokerage activities totaling $532,000 was $121,000 or 18.5 percent
lower during the second quarter of 2000 than for 1999, partially offset by trust
(fiduciary) income increasing $61,000 or 10.0 percent to $669,000. The financial
markets during the second quarter were in turmoil as a result of an uncertain
economic growth rate and fear of further Federal Reserve Bank action or
increased inflation. These uncertainties produced slower growth in revenue from
investment products that may continue for the remainder of 2000. Service charges
on deposit and other service charges and fees on an aggregate basis increased
$19,000 or 1.2 percent to $1,594,000 during the second quarter of 2000 as
compared to a year ago and other income grew $207,000 to $437,000. The increase
in other income was largely due to $160,000 in gains on the sale of loans
totaling $9.4 million recorded in the Company's banking subsidiary's newly
formed division known as Seacoast Marine Finance, headquartered in Fort
Lauderdale, Florida. Entry into the Fort Lauderdale market began in early
February with an experienced, seasoned team of marine lending professionals.
Seacoast Marine Finance's marketing emphasis is to the southeast for
transactions of $200,000 and greater, with the majority of business volumes
generated sold to larger regional financial institutions.
Noninterest income, excluding gains and losses from securities sales, totaled
$6,675,000 for the six month period ending June 30, 2000, an increase of
$482,000 or 7.8 percent from the same period last year. As in the quarterly
comparison, the most significant increase was a $275,000 increase in other
income, which included $218,000 in gains on the sale of Seacoast Marine Finance
loans. This was followed by increases of $76,000 and $141,000 in brokerage
commissions and trust income, respectively. Service charges on deposits and
other service charges and fees on an aggregate basis were $10,000 lower.
Higher rates for fixed rate residential 15- and 30-year loan products during
late 1999 and in 2000 have resulted in lower activity. In the first six months
of 1999 the Company securitized and sold $24.9 million of its residential
mortgage production, compared to $3.3 million in cash sales in the first half of
2000. In 1999, sales of securitized residential mortgages generated additional
income of $193,000, of which $45,000 is included in investment securities gains
of $92,000 recorded in the second quarter and $148,000 is included in investment
securities gains of $227,000 recorded in the first quarter. In 2000, gains on
sales of residential mortgages of $24,000 and $7,000 were recorded to other
income in the second and first quarters, respectively.
NONINTEREST EXPENSES
--------------------
When compared to 1999, noninterest expenses for the second quarter decreased by
$498,000 or 5.4 percent to $8,741,000. The Company's overhead ratio decreased
from 68.6 percent in the second quarter of 1998 to 65.3 percent a year ago for
the second quarter to 62.7 percent this year for the second quarter. This is
reflective of initiatives to reduce overhead costs, particularly staffing, and
streamlined operational and procedural changes implemented throughout 1999.
Compared to the second quarter of 1999, salaries and wages decreased $530,000 or
14.1 percent to $3,242,000. Employee benefits declined $86,000 or 9.0 percent to
$868,000. Most of the decrease in wage and benefit costs is related to lower
performance award incentive accruals for 2000.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
increased $48,000 or 3.7 percent to $1,333,000, versus second quarter results
last year. In July 2000, the Company's bank subsidiary will open 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 outparcel in front of a major Florida grocery store.
Costs associated with foreclosed and repossessed asset management and
disposition decreased $51,000 with a net recovery of $1,000 recorded in the
second quarter of 2000, a reflection of low nonperforming asset balances (see
"Nonperforming Assets") and gains of $22,000 recorded on the sale of foreclosed
real estate during the quarter. Legal and professional costs decreased $108,000
or 28.4 percent to $272,000. 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,
decreased by $3,000 to $408,000 in the second quarter of 2000 when compared to a
year ago.
<PAGE>
Outside data processing costs totaled $1,056,000 for the second quarter of 2000,
an increase of $180,000 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.
Noninterest expenses for the six month period ending June 30, 2000 were $717,000
or 3.9 percent lower and totaled $17,747,000. Changes year over year were as
follows: 1) salaries and wages declined $637,000 or 8.8 percent, 2) employee
benefits fell $192,000 or 10.0 percent, 3) occupancy and furniture and equipment
expenses increased $105,000 or 4.1 percent, on an aggregate basis, 4) costs
associated with foreclosed and repossessed asset management and dispositions
decreased $50,000 to $48,000, 5) legal and professional fees declined $188,000
or 24.8 percent, 6) marketing expenses were $9,000 or 1.0 percent lower, 7)
outsourced data processing costs increased $226,000 or 12.3 percent, and 7) the
other expense category grew $9,000 or 0.3 percent.
INCOME TAXES
------------
Income taxes as a percentage of income before income taxes were 38.3 percent for
the first six months of this year, compared to 37.8 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.
FINANCIAL CONDITION
CAPITAL RESOURCES
-----------------
The Company's ratio of average shareholders' equity to average total assets
during the first six months of 2000 was 7.73 percent, compared to 7.44 percent
during the first six 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 June 30, 2000,
the Company's ratio was 12.09 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 $827,437,000 at June 30, 2000, $80,399,000 or 10.8 percent more than at
June 30, 1999, and $49,273,000 or 6.3 percent more than at December 31, 1999.
At June 30, 2000, the Company's mortgage loan balances secured by residential
properties amounted to $466,952,000 or 56.4 percent of total loans (versus 54.5
percent a year ago). The next largest concentration was loans secured by
commercial real estate which totaled $185,914,000 or 22.5 percent (versus 24.7
percent a year ago). The Company was also a creditor for consumer loans to
individual customers totaling $88,110,000, primarily secured by motor vehicles
and including marine loans totaling approximately $8.9 million generated by the
Company's subsidiary bank's newly created lending division, Seacoast Marine
Finance, headquartered in Fort Lauderdale, Florida. Commercial loans of
$35,393,000, home equity lines of credit of $13,179,000, and construction loans
of $37,646,000 were outstanding as well at June 30, 2000.
During the first six months of 2000, $3.3 million in fixed rate residential
mortgage loans and $15.6 million in marine loans (generated by Seacoast Marine
Finance) were sold. Over the past twelve months $22.0 million in such loans were
sold.
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 June 30, 2000, approximately
$187 million or 40 percent of the Company's residential mortgage loan balances
were adjustable.
Of the approximate $55 million of new residential loans originated in 2000, $43
million were adjustable and $12 million were fixed rate. Loans secured by
residential mortgages having fixed rates totaled approximately $280 million at
June 30, 2000, of which 15- and 30-year mortgages totaled $120 million and $111
million, respectively. Remaining fixed rate balances were comprised of home
improvement loans with maturities less than 15 years.
<PAGE>
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 $59,000 in net
charge-offs for the first six 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, especially given the area's
large percentage of retired persons.
Fixed rate and adjustable rate loans secured by commercial real estate totaled
approximately $118 million and $68 million, respectively, at June 30, 2000,
compared to $120 million and $64 million, respectively, a year ago. The Company
attempts to reduce its exposure to the risk of the local real estate market by
limiting the aggregate size of its commercial real estate portfolio and by
making commercial real estate loans primarily on owner occupied properties.
At June 30, 2000, the Company had commitments to make loans (excluding unused
home equity lines of credit) of $79,948,000, compared to $69,775,000 at June 30,
1999.
ALLOWANCE FOR LOAN LOSSES
-------------------------
Net losses on installment loans totaled $141,000 for the first six months of
2000, compared to net losses of $134,000 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 $59,000 were recorded in the first six months, versus $49,000 a
year ago. Net recoveries recorded for commercial real estate loans and credit
cards of $33,000 and $50,000, respectively, in the first six months of 2000
compared with the prior year when net recoveries of $58,000 and $46,000,
respectively, were reported. Net recoveries for commercial loans of $49,000 in
the first six months of 2000 compared to $34,000 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 0.86
percent at June 30, 2000. This ratio was 0.89 percent at June 30, 1999. The
allowance for loan losses as a percentage of nonaccrual loans and loans 90 days
or more past due was 260.1 percent at June 30, 2000, compared to 317.2 percent
at the same date in 1999.
NONPERFORMING ASSETS
--------------------
At June 30, 2000, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned (OREO) was 0.34 percent, compared to
0.35 percent one year earlier.
At June 30, 2000, no accruing loans past due 90 days or more were outstanding
and OREO totaled $105,000. In 1999 on the same date, loans totaling $45,000 were
past due 90 days or more and OREO balances of $594,000 were outstanding.
Nonaccrual loans totaled $2,731,000 at June 30, 2000, compared to a balance of
$2,054,000 at June 30, 1999. Most of the increase is due to a single residential
real estate credit totaling $897,000 with a loan to value of less than 50
percent. All of the nonaccrual loans outstanding at June 30, 2000 were
performing with respect to payments, with the exception of seventeen loans
aggregating to $1,878,000. The performing loans were placed on nonaccrual status
because the Company has determined that the collection of principal or interest
in accordance with the terms of such loans is uncertain. Of the amount reported
in nonaccrual loans at June 30, 2000, 91 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.
<PAGE>
SECURITIES
----------
Debt securities that the Company has the intent and ability to hold to maturity
are carried at amortized cost. All other securities are carried at market value
and are available for sale. At June 30, 1999, the Company had $197,660,000 or
87.7 percent of total securities available for sale and securities held to
maturity were carried at an amortized cost of $27,815,000, representing 12.3
percent of total securities.
The Company's securities portfolio decreased $23,746,000 or 10.6 percent from
June 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 June 30, 2000, the duration of the
portfolio was 3.3 years, compared to 3.0 years a year ago.
Unrealized securities losses of $9,008,000 at June 30, 2000, compared to losses
of $4,998,000 at June 30, 1999. The Federal Reserve Bank increased rates 75
basis points in 1999 and 100 basis points in 2000. As a result, a shifting U.S.
Treasury yield curve over the past twelve months resulted in increased
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
Council (FFIEC) definition of a high risk investment.
DEPOSITS / BORROWINGS
---------------------
Total deposits increased $18,244,000 or 2.0 percent to $939,028,000 at June 30,
2000, compared to one year earlier. Lower cost interest bearing deposits (NOW,
savings and money market deposits) declined $2,173,000 or 0.6 percent to
$376,289,000, while all other types of deposits grew. Certificates of deposit
increased $12,331,000 or 3.0 percent to $418,136,000 over the past twelve months
and noninterest bearing demand deposits increased $8,086,000 or 5.9 percent to
$144,603,000.
Repurchase agreement balances increased $4,288,000 or 25.3 percent to
$21,218,000 at June 30, 2000 from a year ago and federal funds purchased
increased $5,000,000 to $10,000,000. 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 $25,000,000
to $49,970,000, reflecting funding obtained through the FHLB for a term of two
years at 6.99 percent in mid-March 2000.
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 31.0 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 3.8 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.
<PAGE>
LIQUIDITY MANAGEMENT
--------------------
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected future liquidity requirements. Sources of
liquidity, both anticipated and unanticipated, are maintained through a
portfolio of high quality marketable assets, such as residential mortgage loans,
securities available for sale and federal funds sold. The Company has access to
federal funds lines of credit and is able to provide short term financing of its
activities by selling, under an agreement to repurchase, United States Treasury
and Government agency securities not pledged to secure public deposits or trust
funds. At June 30, 2000, the Company had available lines of credit of
$120,500,000. The Company also had $110,328,000 of United States Treasury and
Government agency securities and mortgage backed securities not pledged and
available for use under repurchase agreements. At June 30, 1999, the amount of
securities available and not pledged was $115,954,000.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $30,988,000 at June 30, 2000 as compared to
$25,602,000 at June 30, 1999. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer, and
vary with the level of principal repayments and investment activity occurring in
the Company's securities portfolio and loan portfolio.
As is typical of financial institutions, cash flows from investing activities
(primarily in loans and securities) and from financial activities (primarily
through deposit generation and short term borrowings) exceeded cash flows from
operations. In 2000, the cash flow from operations of $6,611,000 was $999,000
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.
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 4. Submission of Matters to a Vote of Security Holders
(a) The 2000 Annual Meeting of Shareholders was held April 20, 2000
(b) All directors reported to the Commission in the 2000 Proxy statement
were re-elected in entirety.
(c) The following matters were voted upon at the meeting:
(i) The election of ten directors to serve until the 2001 Annual
Meeting of Shareholders and until their successors have been
elected and qualified. Out of 6,339,291 votes represented at the
meeting, the number of votes cast for and against (or withheld)
their re-election were 6,245,261 (98.5%) and 94,030,
respectively.
(ii) The approval and adoption of the Seacoast 2000 Long-Term
Incentive Plan. Out of 6,339,291 votes represented at the
meeting, 5,153,840 votes (81.3%) were cast in favor and 477,926
votes were cast against the proposed approval and adoption. This
represented an affirmative vote of 69.9% of all shares of Common
Stock outstanding and entitled to vote.
(iii) The ratification of the appointment of Arthur Andersen LLP as
independent auditors for the fiscal year ending December 31,
2000. Out of 6,339,291 votes represented at the meeting, the
number of votes cast for and against the ratification were
6,302,836 (99.4%) and 29,586, respectively. Abstaining were votes
totaling 6,869.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three month period ended June 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
August 11, 2000 /s/ Dennis S. Hudson, III
--------------- ----------------------------------
DENNIS S. HUDSON, III
President &
Chief Executive Officer
August 11, 2000 /s/ William R. Hahl
--------------- ---------------------------------
WILLIAM R. HAHL
Executive Vice President &
Chief Financial Officer
