-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AnD5jGDmYNI+opo/MK7AyKELftmC9F66RudHg9ngFq4PwPrJ07eAQonIeghBNCnH 74lNiORVN1BUCZde8ZyGVg== 0000950144-96-001359.txt : 19960401 0000950144-96-001359.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950144-96-001359 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEACOAST BANKING CORP OF FLORIDA CENTRAL INDEX KEY: 0000730708 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 592260678 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13660 FILM NUMBER: 96541410 BUSINESS ADDRESS: STREET 1: 815 COLORADO AVE STREET 2: P O BOX 9012 CITY: STUART STATE: FL ZIP: 34994 BUSINESS PHONE: 4072874000 MAIL ADDRESS: STREET 1: 815 COLORADO AVE STREET 2: P O BOX 9012 CITY: STUART STATE: FL ZIP: 34995 10-K 1 SEACOAST BANKING CORPORATION OF FLORIDA 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended Commission File DECEMBER 31, 1995 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) (407) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 2 State the aggregate market value of the voting stock held by non-affiliates of the registrant as of February 16, 1996: Class A Common Stock, $.10 par value - $64,154,134 based upon the closing sale price on February 16, 1996, using beneficial ownership stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934, to exclude voting stock owned by directors and certain executive officers, some of whom may not be held to be affiliates upon judicial determination. Class B Common Stock, $.10 par value - $2,569,275 based upon the closing sale price on February 16, 1996, of the Class A Common Stock, $.10 par value, into which each share of Class B Common Stock, $.10 par value, is immediately convertible on a one-for-one basis, using beneficial ownership stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934, to exclude voting stock owned by directors and certain executive officers, some of whom may not be held to be affiliates upon judicial determination. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of February 16, 1996: Class A Common Stock, $.10 Par Value - 3,745,963 shares Class B Common Stock, $.10 Par Value - 509,501 shares - 2 - 3 Documents Incorporated by Reference: 1. Portions of the registrant's 1995 Annual Report to Shareholders for the fiscal year ended December 31, 1995 ("1995 Annual Report"), are incorporated by reference into Parts II and IV 2. Portions of the registrant's March 21, 1996 Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 1996 ("1996 Proxy Statement"), are incorporated by reference into Part III 3. Articles of Incorporation, as amended, incorporated herein by reference from registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 31, 1989 4. By-laws of the Corporation, as amended, incorporated herein by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992 5. Specimen Class A Common Stock Certificate, incorporated herein by reference from Exhibit 4.1 of the Registrant's Registration Statement on Form S-1, File No. 2-88829 6. Specimen Class B Common Stock Certificate, incorporated herein by reference from Exhibit 4.2 of registrant's Registration Statement on Form S-1, File No. 2-88829 7. Profit Sharing Plan, incorporated herein by reference from registrant's Registration Statement on Form S-8, File No. 33-22846, dated July 18, 1988 8. Employee Stock Purchase Plan, incorporated herein by reference from registrant's Registration Statement on Form S-8 File No. 33-25267, dated November 18, 1988 9. Amendment No. 1 to the Employee Stock Purchase Plan, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 29, 1991 10. Executive Employment Agreement, dated March 22, 1991 between A. Douglas Gilbert and the Bank, incorporated herein by reference from registrant's Annual Report on Form 10-K, dated March 29, 1991 11. Executive Employment Agreement, dated January 18, 1994 between Dennis S. Hudson, III and the Bank, incorporated herein by reference from registrant's Annual Report on Form 10-K, dated March 28, 1995 - 3 - 4 FORM 10-K CROSS-REFERENCE INDEX
Page of ------------- Form Annual 10-K Report ----- ------ PART I - ------- Item 1. Business 6-21 -- Item 2. Properties 22-25 -- Item 3. Legal Proceedings 26 -- Item 4. Submission of Matters to a Vote of Security-Holders 26 -- PART II - ------- Item 5. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters 27-28 38 Item 6. Selected Financial Data 28 3 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 28 20-35 Item 8. Financial Statements and 28 40-53 Supplementary Data 36-38 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 28 -- Page of _ -------------- Form Proxy 10-K Stmt ------ ------ PART III - -------- Item 10. Directors and Executive Officers 29 2-8 of the Registrant Item 11. Executive Compensation 29 8-22 Item 12. Security Ownership of Certain Beneficial Owners and Management 29 4-8,23 Item 13. Certain Relationships and Related 29 16 Transactions
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Page of ------------ Form Annual 10-K Report ---- ------ PART IV - -------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 30 (a)(1) List of All Financial Statements 30 Consolidated Balance Sheets as of December 31, 1995 and 1994 30 42-43 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 30 41 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 30 45 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994, and 1993 30 44,53 Notes to Consolidated Financial Statements 30 46-53 Report of Independent Certified Public Accountants 30 40 (a)(2) List of Financial Statement Schedules 30 -- (a)(3) List of Exhibits 30-31 -- (b) Reports on Form 8-K 32 -- (c) Exhibits 32 -- (d) Financial Statement Schedules 32 --
- 5 - 6 PART I ITEM 1. BUSINESS General Seacoast Banking Corporation of Florida ("Seacoast" or "Company") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("BHC Act"). Seacoast was incorporated under the laws of the State of Florida on January 24, 1983, by the management of its principal subsidiary, First National Bank and Trust Company of the Treasure Coast ("Bank") for the purpose of forming a holding company for the Bank. On December 30, 1983, Seacoast acquired all of the outstanding shares of the common stock of the Bank in exchange for 810,000 shares of its $.10 par value Class A common stock ("Class A Common Stock") and 810,000 shares of its $.10 par value Class B common stock ("Class B Common Stock"). The Bank commenced operations in 1933 under the name "Citizens Bank of Stuart" pursuant to a charter originally granted by the State of Florida in 1926. The Bank converted to a national banking association on August 29, 1958. On December 19, 1991, Seacoast issued 690,000 shares of Class A common stock. The net proceeds to Seacoast from the sale of the Class A stock offered was $5,886,000. Approximately $4.5 million of the net proceeds were used to replace $2.5 million of capital supplied by Seacoast to the Bank in connection with the acquisition of American Pioneer Federal Savings Bank and to add $2.0 million to the Bank's capital to support growth and for general corporate purposes. The remainder of the net proceeds were used by Seacoast for general corporate purposes, including capital to support future growth. On April 14, 1995, the Bank acquired American Bank Capital Corporation of Florida and its subsidiary, American Bank of Martin County. See "Expansion of Business". Through the Bank, Seacoast offers a full array of deposit accounts and retail banking services, engages in consumer and commercial lending and provides a wide variety of trust services. Seacoast's primary service area is the "Treasure Coast", which consists of the counties of Martin, St. Lucie and Indian River on Florida's southeastern coast. The Bank operates banking offices in the following cities; five in Stuart, two in Palm City, two in Vero Beach, four in Port St. Lucie, one in Ft. Pierce, one in Hobe Sound and two in Jensen Beach. Most of the banking offices have one or more Automatic Teller Machines which provide customers with 24-hour access - 6 - 7 to their deposit accounts. Seacoast is a member of two state-wide funds transfer systems known as the "HONOR System" and the "Presto System", which permit banking customers access to their accounts at over 3,800 locations state-wide. The HONOR System also permits the Bank's customers access to their accounts via other systems outside the State of Florida. Customers can also use the Bank's "MoneyPhone" system to access information on their loan or deposit account balances, or to transfer funds between linked accounts, make loan payments as well as verify deposits or checks that may have cleared. This service is accessible by phone 24-hours a day, seven days a week. In addition, customers may access information via the Bank's Telephone Banking Center ("TBC"). From 7 A.M. to 7 P.M., servicing personnel in the TBC are available to open accounts, take applications for certain types of loans, resolve account problems and offer information on other bank products and services to existing and potential customers. Seacoast has three indirect subsidiaries. Suite 100 Investment Services, Inc. ("Suite 100") provides brokerage services. South Branch Building, Inc. is a general partner in a partnership which constructed a branch facility. Big O RV Resort, Inc. was formed to own and operate certain properties acquired through foreclosure, however it is currently inactive. No properties were outstanding as assets of Big O RV Resort, Inc. at December 31, 1995. The operations of these subsidiaries contribute less than 10% of the consolidated assets and revenues of Seacoast. As a bank holding company, Seacoast is a legal entity separate and distinct from its subsidiaries. Seacoast coordinates the financial resources of the consolidated enterprise and maintains financial, operational and administrative systems that allow centralized evaluation of subsidiary operations and coordination of selected policies and activities. Seacoast's operating revenues and net income are derived primarily from its subsidiaries through dividends, fees for services performed and interest on advances and loans. As of December 31, 1995, Seacoast and its subsidiaries employed 311 full-time equivalent employees. Expansion of Business Seacoast has expanded its products and services to meet the changing needs of the various segments of its market and it expects to continue this strategy. Prior to 1991, Seacoast had expanded geographically by adding branches, including the acquisition of a thrift branch in St. Lucie County. - 7 - 8 Seacoast from time to time considers acquisitions of other depository institutions or corporations engaged in bank-related activities. On September 20, 1991, the Bank acquired from the Resolution Trust Corporation ("RTC") 10 branches and approximately $110 million of deposits of a failed thrift, American Pioneer Federal Savings Bank ("American Pioneer"), for a deposit premium of $752,000. Following the acquisition, the Bank temporarily rented all the branch facilities from the RTC at commercially reasonable rates to preserve existing customer relationships and to facilitate their transfer to the Bank. On October 18, 1991, the Bank ceased renting the branch office facilities it did not intend to acquire to avoid duplication of existing facilities. After negotiation, definitive agreements with the RTC were executed for the purchase of five branch facilities. See "Item 2. Properties". On April 14, 1995, the Bank acquired approximately $46 million in loans and $62 million in deposits by purchasing American Bank Capital Corporation of Florida ("American Bank") and its subsidiary, American Bank of Martin County. The transaction was treated as a purchase with the Bank paying $9.3 million in cash. At December 31, 1995, intangible assets resulting from this acquisition, included goodwill of $4.4 million and care deposit premium of $1.9 million. Following this acquisition, the Bank closed its existing East Ocean office location in order to move to a more attractive location acquired from American Bank, and continued operation of an office location owned by American Bank in southern Martin County. See "Item 2. Properties". Florida law permits cross-county branching. Seacoast anticipates future expansion within its market area by opening additional offices and facilities. In February 1993, a second office in Vero Beach, Indian River County was established. In September 1993, an office was opened in Sandhill Cove, an upscale life-care retirement community located in Palm City (Martin County). A new banking facility was opened in November 1994 in St. Lucie West, a new community west of Port St. Lucie. Competition Seacoast and its subsidiaries operate in the highly competitive markets of Martin, St. Lucie and Indian River Counties of Florida. The Bank not only competes with other banks in its markets, but it also competes with various other types of financial institutions for deposits, certain commercial, fiduciary and investment services and various types of loans and certain other financial services. The Bank also competes for interest-bearing funds with a number of other financial intermediaries and investment alternatives, including mutual funds, brokerage firms, - 8 - 9 governmental and corporate bonds, and other securities. Seacoast and its subsidiaries compete not only with financial institutions based in the State of Florida, but also with a number of large out-of-state and foreign banks, bank holding companies and other financial institutions which have an established market presence in the State of Florida. Many of Seacoast's competitors are engaged in local, regional, national and international operations and have greater assets, personnel and other resources than Seacoast. Supervision and Regulation Bank holding companies and banks are extensively regulated under federal and state law. This discussion is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the status or regulations applicable to the Company's and the Bank's business. Supervision, regulation, and examination of the Company and the Bank and their respective Subsidiaries by the bank regulatory agencies are intended primarily for the protection of depositors rather than holders of Company capital stock. Any change in applicable law or regulation may have a material effect on the Company's business. Bank Holding Company Regulation The Company, as a bank holding company, is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve") under the BHC Act. The Company is required to file with the Federal Reserve periodic reports and such other information as the Federal Reserve may request. The Federal Reserve examines the Company, and may examine the Company's subsidiaries. The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all the assets of any bank, or for a merger or consolidation of a bank holding company with another bank holding company. With certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company, may, however, engage in or acquire an interest in a company that engages in activities which the Federal Reserve has determined by regulation or order to be so closely related to banking or managing or controlling banks to be a proper incident - 9 - 10 thereto. The Company is a legal entity separate and distinct from the Bank and its other Subsidiaries. Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company or its non-bank subsidiaries. The Company and the Bank also are subject to Section 23A of the Federal Reserve Act. Section 23A defines "covered transactions", which include extensions of credit, and limits a bank's covered transactions with any affiliate to 10% of such bank's capital and surplus. All covered and exempt transactions between a bank and its affiliates must be on terms and conditions consistent with safe and sound banking practices, and banks and their subsidiaries are prohibited from purchasing low-quality assets from the bank's affiliates. Finally, Section 23A requires that all of a bank's extensions of credit to an affiliate be appropriately secured by acceptable collateral, generally United States government or agency securities. The Company and the Bank also are subject to Section 23B of the Federal Reserve Act, which generally limits covered and other transactions among affiliates to terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the bank or its subsidiary as prevailing at the time for transactions with unaffiliated companies. The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Banking Act"), which became effective on September 29, 1995, repealed the prior statutory restrictions on interstate acquisitions of banks by bank holding companies, such that Seacoast and any other bank holding company located in Florida may now acquire a bank located in any other state, and any bank holding company located outside Florida may lawfully acquire any bank based in another state, regardless of state law to the contrary, in either case subject to certain deposit-percentage, aging requirements, and other restrictions. The Interstate Banking Act also generally provides that, after June 1, 1997, national and state-chartered banks may branch interstate through acquisitions of banks in other states. By adopting legislation prior to that date, a state has the ability either to "opt in" and accelerate the date after which interstate branching is permissible or "opt out" and prohibit interstate branching altogether. As of the date hereof, Florida has not adopted legislation opting in or out of interstate branching , but opt-in legislation is expected to be introduced for consideration by the Florida legislature in Spring 1996. Federal Reserve policy requires a bank holding company to act as a source of financial strength and to take measure to preserve and protect bank subsidiaries in situations where - 10 - 11 additional investments in a troubled bank may not otherwise be warranted. In addition, under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company's subsidiary depository institutions are responsible for any losses to the Federal Deposit Insurance Corporation ("FDIC") as a result of an affiliated depository institution's failure. As a result, a bank holding company may be required to loan money to its subsidiaries in the form of capital notes or other instruments which qualify as capital under regulatory rules. However, any loans from the holding company to such subsidiary banks likely will be unsecured and subordinated to such bank's depositors and perhaps to other creditors of the bank. Bank and Bank Subsidiary Regulation Generally The Bank is subject to supervision, regulation, and examination by the Office of the Comptroller of the Currency (the "OCC") which monitors all areas of the operations of the Bank, including reserves, loans, mortgages, issuances of securities, payment of dividends, establishment of branches, and capital. The Bank is a member of the FDIC's, and its deposits are insured by the FDIC to the maximum extent provided by law. See "FDIC Insurance Assessments." Under present Florida law, the Bank currently may establish and operate branches throughout the State of Florida, subject to the maintenance of adequate capital for each branch and the receipt of OCC approval. Suite 100, a Bank subsidiary, is registered as a securities broker-dealer under the Exchange Act and is regulated by the Securities and Exchange Commission ("SEC"). As a member of the National Association of Securities Dealers, Inc. ("NASD"), it also is subject to examination and supervision of its operations and accounts. Community Reinvestment Act The Company and the Bank are subject to the provisions of the Community Reinvestment Act of 1977, as amended (the "CRA") and the federal banking agencies' regulations thereunder. Under the CRA, all banks and thrifts have a continuing and affirmative obligation, consistent with its safe and sound operation to help meet the credit needs for their entire communities, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires a depository institution's primary federal - 11 - 12 regulator, in connection with its examination of the institution, to assess the institution's record in assessing and meeting the credit needs of the community served by that institution, including low- and moderate-income neighborhoods. The regulatory agency's assessment of the institution's record is made available to the public. Further, such assessment is required of any institution which has applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage for a newly-chartered institution; (iii) establish a new branch office that accepts deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the records of each subsidiary depository institution of the applicant bank holding company, and such records may be the basis for denying the application. Under new CRA regulations, effective January 1, 1996, the process-based CRA assessment factors have been replaced with a new evaluation system that rates institutions based on their actual performance in meeting community credit needs. The evaluation system used to judge an institution's CRA performance consists of three tests: a lending test; an investment test; and a service test. Each of these tests will be applied by the institution's primary federal regulator taking into account such factors as: (i) demographic data about the community; (ii) the institution's capacity and constraints; (iii) the institution's product offerings and business strategy; and (iv) data on the prior performance of the institution and similarly-situated lenders. The new lending test -- the most important of the three tests for all institutions other than wholesale and limited purpose (e.g., credit card) banks -- will evaluate an institution's lending activities as measured by its home mortgage loans, small business and farm loans, community development loans, and, at the option of the institution, its consumer loans. Each of these lending categories will be weighed to reflect its relative importance to the institution's overall business and, in the case of community development loans, the characteristics and needs of the institution's service area and the opportunities available for this type of lending. Assessment criteria for the lending test will include: (i) geographic distribution of the institution's lending; (ii) distribution of the institution's home mortgage and consumer loans among different economic segments of the community; (iii) the number and amount of small business and small farm loans made by the institution; (iv) the number and amount of community development loans outstanding; and (v) the institution's use of innovative or - 12 - 13 flexible lending practices to meet the needs of low-to-moderate income individuals and neighborhoods. At the election of an institution, or if particular circumstances so warrant, the banking agencies will take into account in making their assessments lending by the institution's affiliates as well as community development loans made by the lending consortia and other lenders in which the institution has invested. As part of the new regulation, all financial institutions will be required to report data on their small business and small farm loans as well as their home mortgage loans, which are currently required to be reported under the Home Mortgage Disclosure Act. The investment test focuses on the institution's qualified investments within its service area that (i) benefit low-to-moderate income individuals and small businesses or farms, (ii) address affordable housing needs, or (iii) involve donations of branch offices to minority or women's depository institutions. Assessment of an institution's performance under the investment test is based upon the dollar amount of the institution's qualified investments, its use of innovative or complex techniques to support community development initiatives, and its responsiveness to credit and community development needs. The service test evaluates an institution's systems for delivering retail banking services, taking into account such factors as (i) the geographic distribution of the institution's branch offices and ATMs, (ii) the institution's record of opening and closing branch offices and ATMs, and (iii) the availability of alternative product delivery systems such as home banking and loan production offices in low-to-moderate income areas. The federal regulators also will consider an institution's community development service as part of the service test. A separate community development test will be applied to wholesale or limited purpose financial institutions. Institutions having total assets of less than $250 million will be evaluated under more streamlined criteria. Seacoast and the Bank are ineligible for these streamlined criteria. In addition, a financial institution will have the option of having its CRA performance evaluated based on a strategic plan of up to five years in length that it had developed in cooperation with local community groups. In order to be rated under a strategic plan, the institution will be required to obtain the prior approval of its federal regulator. The interagency CRA regulations provide that an institution evaluated under a given test will receive one of five ratings for that test: outstanding, high satisfactory, low satisfactory, needs to improve, or substantial non-compliance. An institution will receive a certain number of - 13 - 14 points for its rating on each test, and the points are combined to produce an overall composite rating of either outstanding, satisfactory, needs to improve, or substantial noncompliance. Under the agencies' rating guidelines, an institution that receives an "outstanding" rating on the lending test will receive an overall rating of at least "satisfactory", and no institution can receive an overall rating of "satisfactory" unless it receives a rating of at least "low satisfactory" on its lending test. In addition, evidence of discriminatory or other illegal credit practices would adversely affect an institution's overall rating. Under the new regulations, an institution's CRA rating would continue to be taken into account by its primary federal regulator in considering various types of applications. As a result of the Bank's most recent CRA examination in August, 1995, the Bank received a "satisfactory" CRA rating. The Bank is also subject, among other things, to the provisions of the Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"), both of which prohibit discrimination based on race or color, religion, national origin, sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. Based on recently heightened concerns that some prospective home buyers and other borrowers may be experiencing discriminatory treatment in their efforts to obtain loans, the Department of Housing and Urban Development, the Department of Justice (the "DOJ"), and all of the federal banking agencies in April 1994 issued an Interagency Policy Statement on Discrimination in Lending in order to provide guidance to financial institutions as to what the agencies consider in determining whether discrimination exists, how the agencies will respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices. The DOJ has also recently increased its efforts to prosecute what it regards as violations of the ECOA and FHA. Payment of Dividends The Company is a legal entity separate and distinct from its banking and other Subsidiaries. The prior approval of the OCC is required if the total of all dividends declared by a national bank (such as the Bank) in any calendar year will exceed the sum of such bank's net profits for the year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits any national bank from paying dividends that would be greater than such bank's undivided profits after deducting statutory bad debt in excess of such bank's allowance for loan losses. In addition, the Company and the Bank are subject to various general regulatory policies and requirements relating to the - 14 - 15 payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a national or state member bank or a bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The OCC and the Federal Reserve have indicated that paying dividends that deplete a national or state member bank's capital base to an inadequate level would be an unsound and unsafe banking practice. The OCC and the Federal Reserve have each indicated that financial depository institutions should generally pay dividends only out of current operating earnings. Capital The Federal Reserve and the OCC have adopted final risk-based capital guidelines for bank holding companies and national and state member banks. As fully phased-in at the end of 1992, the guideline for a minimum ratio of capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) is 8%. At least half of the total capital must consist of common equity, retained earnings and a limited amount of qualifying preferred stock, less goodwill ("Tier 1 capital"). The remainder may consist of subordinated debt, non qualifying preferred stock and a limited amount of any loan loss allowance ("Tier 2 capital" and, together with Tier 1 capital, "Total Capital"). In addition, the federal agencies have established minimum leverage ratio guidelines for bank holding companies, national banks, and state member banks, which provide for a minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets ("leverage ratio") equal to 3%, plus an additional cushion of 100 to 200 basis points (i.e., 1%-2%) if the institution has less than the highest regulatory rating. The guidelines also provide that institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore the Federal Reserve's guidelines indicate that the Federal Reserve will continue to consider a "tangible Tier 1 leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve and OCC have not advised the Company or the Bank of any specific minimum leverage ratio or tangible Tier 1 leverage ratio applicable to them. - 15 - 16 The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, requires the federal banking agencies to take "prompt corrective action" regarding depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized", and "critically undercapitalized". A depository institution's capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. All of the federal banking agencies have adopted regulations establishing relevant capital measures and relevant capital levels. The relevant capital measures are the Total Capital ratio, Tier 1 capital ratio, and the leverage ratio. Under the regulations, a national or state member bank will be (i) well capitalized if it has a Total Capital ratio of 10% or greater, a Tier 1 capital ratio of 6% or greater, and a leverage ratio of 5% or greater and is not subject to any order or written directive by a federal bank regulatory agency to meet and maintain a specific capital level for any capital measure, (ii) adequately capitalized if it has a Total Capital ratio of 8% or greater, a Tier 1 capital ratio of 4% or greater, and a leverage ratio of 4% or greater (3% in certain circumstances), (iii) undercapitalized if it has a Total Capital ratio of less than 8%, a Tier 1 capital ratio of less than 4% (3% in certain circumstances), or (iv) critically undercapitalized if its tangible equity is equal to or less than 2% of average quarterly tangible assets. As of December 31, 1995, the consolidated capital ratios of the Company and the Bank were as follows:
Regulatory Minimum Company Bank Tier 1 capital ratio.. 4.0% 14.0% 12.8% Total Capital ratio... 8.0% 15.0% 13.8% Leverage ratio........ 3.0-5.0% 7.8% 7.1%
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit a capital restoration plan for approval. For a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of 5% of the depository institution's total assets at the time it became undercapitalized and the amount necessary to bring the institution into compliance with - 16 - 17 applicable capital standards. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the controlling holding company fails to fulfill its obligations under FDICIA and files (or has filed against it) a petition under the federal Bankruptcy Code, the claim would be entitled to a priority in such bankruptcy proceeding over third party creditors of the bank holding company. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from corespondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. Because the Company and the Bank exceed applicable capital requirements, the respective managements of the Company and the Bank do not believe that the provisions of FDICIA has any material impact on the Company and the Bank or their respective operations. Bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations, including a proposal to add an interest rate-risk component to risk-based capital requirements. FDICIA FDICIA directs that each federal banking regulatory agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit system, loan documentation, credit underwriting, interest rate exposure, asset growth compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares, and such other standards as the agency deems appropriate. These standards are not expected to have any material effect on the Company and the Bank. FDICIA also contains a variety of other provisions that may affect the operations of the Company and the Bank, including reporting requirements, regulatory standards for estate lending, "truth in savings" provisions, the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities before closing any branch, and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not well capitalized or are adequately capitalized and have not received a waiver from the FDIC. Under regulations relating to brokered deposits, the Bank is well capitalized and not restricted. - 17 - 18 Enforcement Policies and Actions FIRREA and subsequent federal legislation significantly increased the enforcement authorities of the FDIC and other federal depository institution regulators, and authorizes the imposition of civil money penalties of up to $1 million per day. Persons who are affiliated with depository institutions can be removed from any office held in such institution and banned for life from participating in the affairs of any such institution. The banking regulators have not hesitated to use the new enforcement authorities provided under FIRREA. Depositor Preference The Omnibus Budget Reconciliation Act of 1993 provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution in the "liquidation or other resolution" of such an institution by any receiver. Fiscal and Monetary Policy Banking is a business which depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and interest received by a bank on its loans and securities holdings, constitutes the major portion of a bank's earnings. Thus, the earnings and growth of Seacoast and the Bank are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve, and the reserve requirements on deposits. The nature and timing of any changes in such policies and their effect on the Company and its subsidiaries cannot be predicted. FDIC Insurance Assessments The Bank is subject to FDIC deposit insurance assessments. The Bank's deposits are primarily insured by the FDIC's Bank Insurance Fund ("BIF"). The Bank is also a member of the Savings Association Insurance Fund ("SAIF") to the extent that the Bank owns savings deposits acquired in 1991 from the RTC in the American Pioneer transaction. In 1995, the FDIC adopted a new risk-based premium schedule which decreased the assessment rates for BIF depository - 18 - 19 institutions. Under this schedule, which took effect for assessment periods after June 1, 1995, the premiums range from $.04 to $.12 for every $100 of deposits. Prior to June 1, 1995, the premiums ranged from $.23 to $.31 for every $100 of deposit. Each financial institution is assigned to one of three capital groups - well capitalized, adequately capitalized or undercapitalized - and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state regulators and other information relevant to the institution's financial condition and the risk posed to the applicable insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. SAIF-insured deposits are assessed premiums for the SAIF which have remain unchanged at $.23 to $.31 per $100 of deposits, based upon the institution's assigned risk category and supervisory evaluation. During the year ended December 31, 1994, and 1995, the Bank paid $1,191,000 and $728,000, respectively, in BIF and SAIF deposit premiums. BIF and SAIF assessment rates are designed to increase the reserve ratios (i.e., the ratios of reserves to insured deposits) of these funds to 1.25%. During 1995, the BIF reached 1.25%. As a result, the FDIC refunded BIF premiums in September 1995, and reduced BIF premiums to almost zero as of January 1, 1996, with a nominal payment of $2,000 per year for the best-rated banks. However, SAIF's reserve ratio was 0.47% on December 31, 1995, and its premiums remain at $.23 to $.31 for every $100 of deposits. The level of assessments may be affected by consideration of the levels of deposit premiums assessed on SAIF members and the much lower levels of reserves held by the FDIC's SAIF. Any reduction in BIF premiums could be adversely affected by the level of SAIF reserves, especially if BIF and SAIF are combined, as various legislators and regulators have considered. The proposals generally include a one-time "special assessment" of approximately 0.85%, and as a result, the annual assessments presumably would be reduced. Community Development Act The Community Development Act has several titles. Title I provides for the establishment of community development financial institutions to provide equity investments, loans and development services to financially underserved communities. A portion of this Title also contains various provisions regarding reverse mortgages, consumer protections for qualifying mortgages and hearings for home equity lending, among other things. Title II provides for small business loan securitization and securitizations of other loans, including authorizing a study on the impact of additional securities based on pooled obligations. Small - 19 - 20 business capital enhancement is also provided. Title III of the Act provides for paperwork reduction and regulatory improvement, including certain examination and call report issues, as well as changes in certain consumer compliance requirements, certain audit requirements and real estate appraisals, and simplification and expediting processing of bank holding company applications, merger applications and securities filings, among other things. It also provides for commercial mortgage-related securities to be added to the definition of a "mortgage-related security" in the Exchange Act. This will permit commercial mortgages to be pooled and securitized, and permit investment in such instruments without limitation by insured depository institutions. It also pre-empts state legal investment and blue sky laws related to qualifying commercial mortgage securities. Title IV deals with money laundering and currency transaction reports, and Title V reforms the national flood insurance laws and requirements. The nature, timing, and effect upon the Company of any changes resulting from the Community Development Act cannot be predicted. Legislative and Regulatory Changes Various changes have been proposed with respect to restructuring and changing the regulation of the financial services industry. FIRREA required a study of the deposit insurance system. On February 5, 1991, the Department of the Treasury released "Modernizing the Financial System; Recommendations for Safer, More Competitive Banks". Among other matters, this study analyzed and made recommendations regarding reduced bank competitiveness and financial strength, overextension of deposit insurance, the fragmented regulatory system and the under capitalized deposit insurance fund. It proposed restoring competitiveness by allowing banking organizations to participate in a full range of financial services outside of insured commercial banks. Deposit insurance coverage would be narrowed to promote market discipline. Risk based deposit insurance premiums were proposed with feasibility tested through an FDIC demonstration project using private reinsurers to provide market pricing for risk based premiums. Other legislative and regulatory proposals regarding changes in banking, and the regulation of banks, thrifts and other financial institutions and bank and bank holding company powers are being considered by the executive branch of the Federal government, Congress and various state governments, including Florida. Among other items under consideration are the recapitalization of the FDIC's SAIF and a possible combination of BIF and SAIF, changes in or repeal of the Glass-Steagall Act which separates commercial banking from investment banking, and changes in the BHC Act to broaden the powers of "financial services" companies to own and control depository institutions and engage in activities not - 20 - 21 closely related to banking. The United States House of Representatives has passed a bill freezing the adoption of new regulations. Certain of these proposals, if adopted, could significantly change the regulation of banks and the financial services industry. It cannot be predicted whether any of these proposals will be adopted, and, if adopted, how these proposals will affect the Company and the Bank. The United States Supreme Court also is considering a case involving the powers of banking affiliates to conduct insurance business in the State of Florida. Statistical Information Certain statistical information (as required by Guide 3) is included in response to Item 7 of this Annual Report on Form 10-K. Certain statistical information is included in response to Item 6 and Item 8 of this Annual Report on Form 10-K. - 21 - 22 ITEM 2. PROPERTIES Seacoast and the Bank's main office occupy approximately 62,000 square feet of a 68,000 square foot building in Stuart, Florida. The building, together with an adjacent 10-lane drive-in banking facility and an additional 27,000 square foot office building, are situated on approximately eight acres of land in the center of Stuart zoned for commercial use. The building and land are owned by the Bank, which leases out portions of the building not utilized by Seacoast and the Bank to unaffiliated parties. Adjacent to the main office, the Bank leases approximately 21,400 square feet of office space to house operational departments, primarily information systems and retail support. The Bank owns its data processing equipment which is used for servicing bank deposits and loan accounts as well as on-line banking services, providing tellers and other customer service personnel with access to customers' records. As of December 31, 1995, the net carrying value of branch offices (excluding the main office) was approximately $7.7 million. Seacoast's branch offices are described as follows: Jensen Beach, opened in 1977, is a free-standing facility located in the commercial district of a residential community contiguous to Stuart. The 1,664 square foot bank building and land are owned by the Bank. Improvements include three drive-in teller lanes as well as a parking lot and landscaping. East Ocean Boulevard, opened at it's original location in 1978 in a 2,400 square foot building leased to the Bank. It is still located on the main thoroughfare between downtown Stuart and Hutchinson Island's beach-front residential developments. The acquisition of American Bank provided an opportunity for the Bank to move to a new location in April 1995. The first three floors of a four story office condominium were acquired in the acquisition. The 4,600 square foot branch area on the first floor has been remodeled and operates as a full service branch including five drive-in lanes and a drive-up ATM. The remaining 2,300 square feet on the ground floor and all of the second floor has been leased to tenants. The third floor was sold in December 1995. Cove Road, opened in late 1983, is conveniently located to housing developments in the residential areas south of Stuart known as Port Salerno and Hobe Sound. The Bank's subsidiary is a general partner in a partnership which entered into a long term land lease for approximately four acres of property on which it constructed a 7,500 square - 22 - 23 foot building. The Bank leases the building and utilizes approximately 40% of the available space. The balance is sublet by the Bank to other business tenants. The Bank has improved its premises with three drive-in lanes, bank equipment, and furniture and fixtures, all of which are owned by the Bank. Hutchinson Island, opened on December 31, 1984, is in a shopping center located on a coastal barrier island, close to numerous oceanfront condominium developments. The 2,800 square foot branch is under long term lease to the Bank. The Bank has improved the premises with bank equipment and three drive-in lanes, all owned by the Bank. Rivergate, opened October 28, 1985, in 1,700 square feet of leased space in the Rivergate Shopping Center, Port St. Lucie, Florida. The Bank also leased approximately 800 square feet of office space nearby, which served as administrative offices. Both of these offices were under short term leases which expired in 1988. The Bank moved to larger facilities in the Rivergate Shopping Center in April of 1988 under a long term lease agreement. Furniture and bank equipment located in the prior facility were moved to the new facility which has approximately 3,400 square feet and three drive-in lanes. Northport was acquired on June 28, 1986 from Citizens Federal Savings & Loan Association of Miami. This property consists of a storefront under long term lease in the St. Lucie Plaza Shopping Center, Port St. Lucie, of approximately 4,000 square feet. This office was closed March 31, 1994 and the property is utilized for storage. Wedgewood Commons opened in April 1988 and is located on an out parcel under long term lease in the Wedgewood Commons Shopping Center, south of Stuart on U.S. Highway 1. A 2,800 square foot building, four drive-in lanes and bank equipment all of which is owned by the Bank are located on the leased property. Bayshore was opened on September 27, 1990. This branch occupies 3,520 square feet of a 50,000 square foot shopping center located in Port St. Lucie. The Bank has leased the premises under a long term lease agreement and has made improvements to the premises, including three drive-in lanes, all of which are owned by the Bank. Hobe Sound was acquired from the Resolution Trust Corporation on December 23, 1991. This two story facility contains 8,000 square feet and is centrally located in Hobe Sound. Improvements include two drive-in teller lanes, an ATM, and equipment and furniture, all of which are owned by the Bank. - 23 - 24 Fort Pierce was acquired from the Resolution Trust Corporation on December 23, 1991. This 2,895 square foot facility is located in the heart of Fort Pierce and has four drive-in lanes. Equipment and furniture are all owned by the Bank. Martin Downs was purchased from the Resolution Trust Corporation in February 1992. This 3,960 square foot bank building is located at a high traffic intersection in Palm City, an emerging commercial and residential community west of Stuart. Improvements include three drive-in teller lanes, a new ATM, equipment and furniture. Tiffany was purchased from the Resolution Trust Corporation in May 1992. This two story facility contains 8,250 square feet and is located on a corner of U.S. Highway One in Port St. Lucie offering excellent exposure in one of the fastest growing residential areas in the region. Three drive-in teller lanes, an ATM, equipment and furniture are utilized and owned by the Bank. Vero Beach was purchased from the Resolution Trust Corporation in February 1993. This 3,300 square foot bank building is located in Vero beach on U.S. Highway One and represents the Bank's initial presence in this Indian River County market. A leasehold interest in a long-term land lease was acquired. Improvements include three drive-in teller lanes, an ATM, equipment and furniture, all of which are owned by the Bank. Beachland was opened in February 1993, in 4,000 square feet of leased space located in a three-story commercial building on Beachland Boulevard, the main beachfront thoroughfare, in Vero Beach, Florida. Located on the ground floor, this facility has 2 drive-in teller lanes. An ATM, furniture and equipment are all owned by the Bank. Sandhill Cove was opened in September 1993, in an upscale life-care retirement community. The 135 square foot office is located within the facility which is located on 36 acres in Palm City, Florida. This community will contain approximately 168 private residences. St. Lucie West was opened in November 1994, in a 3,600 square foot building located at 1320 S.W. St. Lucie Blvd, Port St. Lucie. This facility has drive-up lanes, a drive-up ATM, night depository and safe deposit boxes. Mariner Square was acquired from American Bank in April 1995. The 3,600 square foot leased space is located on the ground floor of a three story office building located on U.S. Highway 1 between Hobe Sound and Port Salerno. The space was improved to be a full service branch with drive-in lanes and an ATM, all owned by the Bank. - 24 - 25 For additional information, refer to Notes F and I of the Notes to Consolidated Financial Statements in the 1995 Annual Report of Seacoast incorporated herein by reference pursuant to Item 8 of this document. - 25 - 26 ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiary bank, because of the nature of their business, are at times subject to numerous legal actions, threatened or filed, in the normal course of their business. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, after consultation with legal counsel, those claims and lawsuits, when resolved, should not have a material adverse effect on the consolidated results of operation or financial condition of Seacoast and its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. - 26 - 27 PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The class A Common Stock is traded in the over-the-counter market and is quoted on The Nasdaq Stock Market's National Market. There is no established public trading market for the Class B Common Stock of Seacoast. Information as to the quarterly high, low and last sale quotations for the Class A Common Stock on the Nasdaq National Market is set forth under the table captioned "Selected Quarterly Information - Quarterly Consolidated Income Statements" on page 38 of the 1995 Annual Report, incorporated herein by reference. As of February 16, 1995, there were approximately 614 record holders of the Class A Common Stock and 115 record holders of the Class B Common Stock. Seacoast's Articles of Incorporation prohibit the declaration or payment of cash dividends on Class B Common Stock unless cash dividends are declared or paid on Class A Common Stock in an amount equal to at least 110% of any cash dividend on Class B Common Stock. Dividends on Class A Common Stock payable in shares of Class A Common Stock shall be paid to holders of Class A Common and Class B Common Stock at the same time and on the same basis. Quarterly dividends have been paid by Seacoast since the fiscal quarter ended March 31, 1984. Information as to the dividend amounts declared in each quarter for the past two fiscal years is presented in the table captioned "Selected Quarterly Information - Quarterly Consolidated Income Statements" on page 38 of the 1995 Annual Report incorporated herein by reference. See Exhibit 13. Cash dividends of $.45 per share of Class A Common Stock and $.409 per share of Class B Common Stock were paid during 1993. In 1994 cash dividends of $.49 per share of Class A Common Stock and $.445 per share of Class B Common Stock were paid. In 1995 cash dividends of $.54 per share of Class A Common Stock and $.489 per share of Class B Common Stock were declared. Dividends from the Bank are Seacoast's primary source of funds to pay dividends on Seacoast capital stock. Under the National Bank Act, the Bank may in any calendar year, without the approval of the OCC, pay dividends to the extent of net profits for that year, plus retained net profits for the preceding two years (less any required transfers to surplus). The need to maintain adequate capital in the Bank also limits dividends that may be paid to Seacoast. Information regarding a restriction on the ability of the Bank to pay dividends to Seacoast is contained in Note B of the "Notes to Consolidated Financial Statements" contained on page 46 of the 1995 Annual Report and is incorporated - 27 - 28 herein by reference. See "Supervision and Regulation" contained in Part I, Item 1 of this document, and Exhibit 13. The OCC and Federal Reserve have the general authority to limit the dividends paid by insured banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, the OCC determines that the payment of dividends would constitute an unsafe or unsound banking practice, the OCC may, among other things, issue a cease and desist order prohibiting the payment of dividends. This rule is not expected to adversely affect the Bank's ability to pay dividends to Seacoast. See text under the heading "Supervision and Regulation" contained in Part I, Item 1. Each share of Class B Common Stock is convertible by its holder into one share of Class A Common Stock at any time prior to a vote of shareholders authorizing a liquidation of Seacoast. ITEM 6. SELECTED FINANCIAL DATA Selected financial data is incorporated herein by reference under the caption "Financial Highlights" on page 3 of the 1995 Annual Report. See Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations, under the caption "Financial Review - 1995 Management's Discussion and Analysis", on pages 20 through 35 of the 1995 Annual Report is incorporated herein by reference. See Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of Arthur Andersen LLP, independent certified public accountants, and the consolidated financial statements are included on pages 40 through 53 of the 1995 Annual Report and are incorporated herein by reference. "Selected Quarterly Information - Consolidated Quarterly Average Balances, Yields & Rates" and Quarterly Consolidated Income Statements" included on pages 36 through 38 of the 1995 Annual Report are incorporated herein by reference. See Exhibit 13. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. - 28 - 29 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the directors and executive officers of Seacoast is set forth under the headings "Proposal One - Election of Directors" and "Executive Officers" on pages 3 through 8 in the 1996 Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information set forth under the headings "Proposal One - Election of Directors - Compensation of Executive Officers", "Salary and Benefits Committee Report", "Summary Compensation Table", "Grants of Options/SARs in 1995", "Aggregated Options/SAR Exercises in 1995 and 1995 Year-End Option/SAR Values", "Pension Plan", "Employment and Severance Agreements", and "Information About the Board of Directors and its Committees" on pages 8 through 17 of the 1996 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information set forth under the headings, "Proposal One - Election of Directors - General" on pages 2 through 8, "Proposal One - Election of Directors - Management Stock Ownership" on page 8, and "Principal Shareholders" on page 23 in the 1996 Proxy Statement, relating to the number of shares of Class A Common Stock and Class B Common Stock beneficially owned by the directors of Seacoast, all such directors and officers as a group and certain beneficial owners is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information set forth under the heading "Proposal One - Election of Directors - Certain Transactions and Business Relationships" on page 16 of the 1996 Proxy Statement is incorporated herein by reference. - 29 - 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a) 1 List of all financial statements The following consolidated financial statements and report of independent certified public accountants of Seacoast, included in the 1995 Annual Report are incorporated by reference into Item 8 of this Annual Report on Form 10-K. Report of Independent Certified Public Accountants Consolidated Balance Sheets as of December 31, 1995 and 1994 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements a) 2 List of Financial Statement Schedules Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted. a) 3 Listing of Exhibits The following Exhibits are filed as part of this report in Item 14 (c): Exhibit 3.1 Articles of Incorporation, as amended Incorporated herein by reference from registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 31, 1989 Exhibit 3.2 By-laws of the Corporation, as amended Incorporated herein by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992 Exhibit 4.1 Specimen Class A Common Stock Certificate Incorporated herein by reference from Exhibit 4.1 of the Registrant's Registration Statement on Form S-1, File No. 2-88829 Exhibit 4.2 Specimen Class B Common Stock Certificate Incorporated herein by reference from Exhibit 4.2 of registrant's Registration Statement on Form S-1, File No. 2-88829 - 30 - 31 Exhibit 10.1 Profit Sharing Plan Incorporated herein by reference from registrant's Registration Statement on Form S-8, File No. 33-22846, dated July 18, 1988 Exhibit 10.2 Employee Stock Purchase Plan Incorporated herein by reference from registrant's Registration Statement on Form S-8 File No. 33-25267, dated November 18, 1988 Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan Incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 29, 1991 Exhibit 10.4 Executive Employment Agreement Dated March 22, 1991 between A. Douglas Gilbert and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 29, 1991 Exhibit 10.5 Executive Employment Agreement Dated January 18, 1994 between Dennis S. Hudson, III and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 28, 1995. Exhibit 10.6 Executive Employment Agreement Dated July 31, 1995 between C. William Curtis, Jr. and the Bank Exhibit 13 1995 Annual Report The following portions of the 1995 Annual Report are incorporated herein by reference: Financial Highlights Financial Review - Management's Discussion and Analysis Selected Quarterly Information - Quarterly Consolidated Income Statements Selected Quarterly Information - Consolidated Quarterly Average Balances, Yields & Rates Financial Statements Notes to Consolidated Financial Statements Financial Statements - Report of Independent Certified Public Accountants Exhibit 21 Subsidiaries of Registrant Incorporated herein by reference from Exhibit 22 of Registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992 Exhibit 23 Consent of Independent Certified Public Accountants - 31 - 32 b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of 1995. c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. d) Financial Statement Schedules None - 32 - 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stuart, State of Florida, on the 28th day of March, 1996. SEACOAST BANKING CORPORATION OF FLORIDA (Registrant) By: /s/ Dale M. Hudson ----------------------------------------- Dale M. Hudson President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date --------------- /s/ Dennis S. Hudson, Jr. March 28, 1996 - -------------------------------------------- Dennis S. Hudson, Jr., Chairman of the Board and Director /s/ Dale M. Hudson March 28, 1996 - -------------------------------------------- Dale M. Hudson, President, Chief Executive Officer and Director /s/ Dennis S. Hudson, III March 28, 1996 - -------------------------------------------- Dennis S. Hudson, III Executive Vice President, Chief Operating Officer and Director /s/ William R. Hahl March 28, 1996 - -------------------------------------------- William R. Hahl, Senior Vice President and Chief Financial Officer /s/ Jeffrey C. Bruner March 28, 1996 - -------------------------------------------- Jeffrey C. Bruner, Director /s/ John H. Crane March 28, 1996 - -------------------------------------------- John H. Crane, Director /s/ Evans Crary, Jr. March 28, 1996 - -------------------------------------------- Evans Crary, Jr., Director - -------------------------------------------- John R. Santarsiero, Jr., Director /s/ Thomas H. Thurlow, Jr. March 28, 1996 - -------------------------------------------- Thomas H. Thurlow, Jr., Director - 33 - 34 EXHIBITS INDEX Exhibit 10.6 Executive Employment Agreement Exhibit 13 1995 Annual Report Exhibit 23 Consent of Independent Certified Public Accountants Exhibit 27 Financial Data Schedule (for SEC use only) - 34 - EX-10.6 2 EXECUTIVE EMPLOYMENT AGREEMENT 1 Exhibit 10.6 EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is entered into and made effective as of this 31 day of July, 1995 by and among C. William Curtis ("Executive") and the First National Bank and Trust Company of the Treasure Coast (the "Bank"), and the Bank's parent corporation, Seacoast Banking Corporation of Florida (the "Company"). WHEREAS, the Bank and the Company desire to employ Executive as Executive Vice President and Chief Banking Officer and Executive desires to serve in such positions; and WHEREAS, in order to provide adequate assurances to Executive as an inducement to commence and continue his employment with the Bank and the Company, the Bank and the Company desires to enter into this Agreement to set forth the terms of his employment, and to provide for certain payments contingent upon a change in control of the Bank or the Company as hereinafter provided ("Change in Control"); and WHEREAS, Executive desires to enter into the Agreement and to devote his full time best efforts to the Bank and the Company. NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties, intending to be legally bound, agree as follows: 1. EMPLOYMENT. (a) Bank. The Bank shall employ Executive as Executive Vice President and Chief Banking Officer of the Bank with the duties, responsibilities and powers of such office as assigned to him as of the date set forth above and as customarily associated with such office, and Executive shall serve the Bank in such capacities during the term of this Agreement. Executive acknowledges that such duties, responsibilities and powers may be increased from time to time by the Board of Directors of the Bank, that the position held by Executive may be changed or Executive's employment may be terminated pursuant to Section 4(c) hereof by action of the Board of Directors of the Bank prior to a Change in Control and that such a change in position, duties, responsibilities, powers or a termination of employment pursuant to Section 4(c) hereof whether prior to or following a Change in Control shall not entitle Executive to the benefits provided for in Section 5(c), unless such change or termination is not made in good faith. (b) Company. The Company shall employ Executive as Executive Vice President and Chief Banking Officer of the Company with duties, responsibilities and powers of such office as assigned to him as of the date 2 set forth above and as customarily associated with such office, and Executive shall serve the Company in such capacities during the term of this Agreement. Executive acknowledges that such duties, responsibilities and powers may be increased from time to time by the Board of Directors of the Company, that the position held by Executive may be changed or Executive's employment may be terminated pursuant to Section 4(c) hereof by action of the Board of Directors of the Company prior to a Change in Control and that such a change in position, duties, responsibilities, powers or a termination of employment pursuant to Section 4(c) hereof whether prior to or following a Change in Control shall not entitle Executive to the benefits provided for in Section 5(c), unless such change or termination is not made in good faith. (c) Executive represents, warrants and covenants to the Bank and the Company that he will be available to commence his duties hereunder by October 31, 1995 and that this Agreement and his performance of services hereunder does not breach or conflict with any other agreements or instruments to which Executive is a party or may be bound, and that he shall faithfully and diligently discharge his duties and responsibilities under this Agreement, and shall use his full time best efforts to implement the policies established by the Board of Directors and the Chief Executive Officer of the Bank and the Company, respectively. (d) During the term of this Agreement, Executive shall devote his full and exclusive business time, energy and skill to the business of the Bank and the Company, to the promotion of the interests of the Bank and the Company and to the fulfillment of Executive's obligations hereunder. 2. TERM. The term of this Agreement shall be three (3) years from the date hereof, unless further extended by mutual consent of the Bank and Company and Executive or sooner terminated as herein provided. UNLESS 90 DAYS PRIOR NOTICE OF NON-RENEWAL IS GIVEN BY THE EXECUTIVE, THE BANK OR THE COMPANY PRIOR TO THE END OF THE INITIAL AND ANY SUBSEQUENT TERM HEREOF, THIS AGREEMENT SHALL AUTOMATICALLY BE RENEWED ON THE EXPIRATION OF THE INITIAL TERM AND ANNUALLY THEREAFTER THROUGH THE NEXT SUCCEEDING ANNIVERSARY OF THE AGREEMENT. 3. COMPENSATION AND BENEFITS. The Bank shall pay or provide to Executive the following items as compensation for his service hereunder: (i) A base salary of $150,000.00 per year, payable in monthly installments, which base salary may be increased from time to time in accordance with - 2 - 3 normal business practices of the Bank; and (ii) Hospitalization insurance (including major medical), long-term disability insurance, and life insurance in accordance with the Bank's insurance plans for Senior Management as such plans may be modified from time to time; and (iii) Reasonable club dues. The above-stated terms of compensation shall not be deemed exclusive or prevent Executive from receiving any other compensation, including, without limitation, bonuses, provided by the Bank and/or the Company. Executive shall be entitled to participate in all current and future employee benefit plans and arrangements in which the Senior Management of the Bank is permitted to participate. The Company does not separately compensate its officers who are also officers of the Bank and no additional compensation will be payable by the Company hereunder. 4. TERMINATION. Executives' employment under this Agreement shall terminate: (a) Death. Upon Executive's death; or (b) Disability. Upon notice from the Bank to Executive in the event Executive becomes "permanently disabled". For purposes of this Agreement, Executive shall be deemed "permanently disabled" if he has been disabled by bodily or mental illness, disease, or injury, to the extent that, in the opinion of the Board of Directors, he is prevented from performing his material and substantial duties of employment, and provided further that such disability has continued substantially for six (6) months preceding such notice. If requested by the Bank, Executive shall submit to an examination by a physician selected by the Bank for the purpose of determining or confirming the existence of extent of any disability; or (c) Cause. Upon notice from the Bank to Executive for cause. For purposes of this Agreement, "cause" shall be (i) a willful and continued failure by Executive to perform his duties as Executive Vice President and Chief Banking Officer of the Bank and the Company as established by their respective Board of Directors (other than due to disability), or (ii) a breach by Executive of his fiduciary duties of loyalty or care to the Bank, or (iii) a willful violation by Executive of any provision of this Agreement; or (iv) a conviction or the entering of a plea of nolo contendere by Executive for any felony or any crime involving fraud, dishonesty or a breach of trust, or (v) a breach of the Bank's Code of Ethics, or (vi) commission by Executive of a willful or negligent act which causes material harm to the Bank, or - 3 - 4 (vii) habitual absenteeism, alcoholism or other form of drug or other addiction, or (viii) any violation of laws or regulations such that Executive ceases to be eligible to serve as an executive officer of a depository institution or a depository institution holding company or (ix) Executive becomes ineligible to be bonded at costs consistent with the Bank and/or the Company's other senior officers. In addition, if Executive shall terminate his employment for a breach of this Agreement by the Bank in accordance with Section 4(e), and it is ultimately determined that no reasonable basis existed for Executive's termination on account of the alleged default of the Bank and/or the Company, such event shall be deemed cause for termination by the Bank. Any notice of termination of Executive's employment with the Bank for cause shall set forth, in reasonable detail, the facts and circumstances claimed to provide the basis for termination of his employment under the provisions contained herein and the effective date of termination ("Termination Date"); or (d) Change in Control. Upon notice by Executive to the Bank following a "Change in Control" ( as defined in this Section 4(d)), provided Executive terminates his employment within one (1) year following the effective date of such "Change in Control". For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if (i) the Bank or Company shall become a direct or indirect subsidiary of, or shall be merged or consolidated with or into another entity, which entity is neither controlled by the Company nor the Bank or if 51% or more of the voting power of shares of (i) Class A Common Stock, (ii) Class B Common Stock, or (iii) the shares of Class A and Class B Common Stock voting together as one class,of the resulting entity are not held by persons who were shareholders of the Bank or Company immediately before the transaction, subject to the limitations of subparagraph (iii) below, or (ii) substantially all of the assets of the Bank or Company shall be sold or transferred to a person or entity, which person or entity is neither controlled by the Bank or Company, or if 51% or more of the voting power of shares of (i) Class A Common Stock, (ii) Class B Common Stock or (iii) the shares of Class A and Class B Common Stock voting together as one class are not held by persons who were shareholders of the Bank or Company immediately prior to the asset sale, subject to the limitations of subparagraph (iii) below; or (iii) and "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), or persons acting together or in concert, and who are not, at the date hereof, beneficial owners (individually or collectively) of 10% or more of the common stock of the Company or the bank of any class or series become the "beneficial owner" (as defined in Rule 13(d) of the Securities Exchange Act of 1934 as amended) of securities of the Bank or the Company representing 45% or more of the - 4 - 5 voting power of either any individual class of securities or of any classes which vote together of the Bank's or Company's then outstanding securities, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Bank, or (e) Breach. Upon notice from Executive to the Bank and/or the Company of the Bank's and/or the Company's failure to comply with any material provision of this Agreement, provided that the Bank or the Company, as the case may be, shall have thirty (30) days from the receipt of such notice to cure any such failure under this Agreement. If such failure shall be cured or if the Bank and/or Company shall have taken steps to cure the failure within the thirty (30) day period, Executive shall have no right to terminate his employment under the provisions of this Section 4(e); or (f) Change in Position or Duties. Upon notice from Executive to the Bank and/or the Company, in the event that Executive is not elected Executive Vice President and Chief Banking Officer of the Bank and the Company with the duties and powers which are customarily associated with such office; or (g) Improper Termination by Company. Upon notice from Executive to the Bank and/or the Company, as applicable, upon a purported termination of Executive's employment by the Bank and or the Company for cause if it is ultimately determined that cause did not exist; or (h) Expiration of Term. Upon the expiration of the term of this Agreement as set forth in Section 2. 5. COMPENSATION AND BENEFITS PAYABLE UPON TERMINATION. (a) Upon Executive's death, the Bank shall pay Executive's full base salary in accordance with the terms set forth in Section 5(c) below. In addition, the Bank shall continue to pay for and provide to Executive's spouse and eligible dependents hospitalization insurance (including major medical), and any such other health insurance benefits comparable to that coverage that would have been provided under the Bank's group health insurance plan to Executive's spouse and eligible dependents at the date of Executive's death, at such time in accordance with the terms set forth in Section 5(c). (b) In the event Executive becomes permanently disabled and is terminated as set forth in Section 4(b) above, the Bank shall pay to Executive compensation and benefits as set forth in Section 5(c) below, provided that Executive's base salary shall be reduced by any amounts received by Executive under the Bank's long term disability plan or from any other collateral source payable due to disability, including, without limitation, - 5 - 6 social security benefits. If Executive shall remain permanently disabled beyond the period set forth in Section 5(c) below, Executive shall receive only such amounts, if any, as are payable under the Bank's long term disability plan or under any other employee benefit or welfare plan in which Executive participated and is entitled to benefits. (c) If Executive's employment shall be terminated by Executive pursuant to Sections 4(d), (e), (f) or (g), or by the Bank for any reason other than for cause as set forth in Section 4(c), the Bank shall continue to pay to Executive or his estate or beneficiaries, his full base salary (including any other cash compensation) to which Executive would be entitled at the Termination Date or on the date of a Change in Control, whichever date will result in the greater base salary, for a period of two (2) years following the Termination Date. In addition, the Bank shall continue to pay his hospitalization insurance premiums (including major medical), long term disability premiums and life insurance premiums for a period of two (2) years or until his earlier death. The compensation and benefits payable under this Section 5(c) are hereinafter referred to as "Severance Benefits". The payment of Severance Benefits is in recognition and consideration of the value of continued services by Executive to the Bank and is not in any way to be construed as a penalty or damages. Executive shall not be required to mitigate the amount of any payment of Severance Benefits by seeking other employment or otherwise. The payment of Severance Benefits shall not affect any other sums or benefits otherwise payable to Executive under any other employment compensation or benefit or welfare plan of the Bank. (d) In the event termination is, for any reason other than as described in Section 5(a), (b), or (c) above, the Bank shall pay Executive his full salary through the date of termination and no other compensation or benefits shall be paid to Executive hereunder; provided, however, that nothing herein shall be deemed to limit his vested rights under any other benefit, retirement, stock option or pension plan of the Bank, and the terms of those plans, programs or arrangements shall govern. 6. NON-COMPETITION AND NON-DISCLOSURE. (a) To induce the Bank and the Company to enter into this Agreement, Executive agrees that during the term of this Agreement and for a period of two (2) years after the termination of employment or service of Executive hereunder, Executive will not, within Martin, Indian River, or St. Lucie Counties, Florida, or any other county wherein the Bank, the Company and/or its affiliates conducts business at the date his employment is - 6 - 7 terminated, as principal, agent, trustee or through the agency or on behalf of any corporation, partnership, association, trust or agent or agency, (i) engage in the business of banking, fiduciary services, securities brokerage, investment management or services, lending or deposit taking, (ii) control or own beneficially (directly or indirectly) 5% or more of the outstanding capital stock or other ownership interest (a "Principal Stockholder") of any corporation or person engaged in or controlling any such business other than the Company or Bank, or (iii) serve as an officer, director, trustee, agent or employee of any corporation, or as a member, employee or agent of any partnership, or as an owner, trustee, employee or agent of any other business or entity, which directly or indirectly conducts such business within Martin, Indian River, or St. Lucie Counties, Florida, or any other county wherein the Bank, the Company and/or its affiliates conducts business at the date his employment is terminated. Executive further agrees that he will not solicit any employee to leave their employment with the company or Bank or any Company or Bank subsidiaries for any reason or otherwise interfere with the employment relationship of the Company, the Bank, or their subsidiaries if Executive serves as an officer, director, trustee, managing agent or as a Principal Stockholder of any person or entity which hires or seeks or negotiates the employment or hiring of any such employee. In the event that the provisions of this Section 6(a) should be deemed to exceed the time or geographic limitations permitted by applicable law, then such provisions shall be reformed automatically to the maximum time or geographic limitations so permitted. (b) Executive recognizes and acknowledges that he will have access to certain confidential information of the Company, the Bank and of their subsidiaries and affiliates, including, without limitation; customer lists, credit information, organization, pricing, mark-ups, commissions, and other information and that all such information constitutes valuable, special and unique property of the Company, Bank and their subsidiaries and affiliates. Such information is herein referred to as "Trade Secrets". Executive will not disclose or directly or indirectly utilize, in any manner, any such Trade Secrets for his own benefit or the benefit of anyone other than the Company, Bank and their subsidiaries and affiliates during the term of this Agreement and for a period of two (2) years after the term of this Agreement. In the event of a breach or threatened breach by Executive of the provisions of this Section 6(b), the Company, the Bank, or any subsidiary or affiliate of the Company, or the Bank shall be entitled to an injunction restraining Executive and any others from disclosing or utilizing, in whole or in part, such Trade Secrets. Nothing herein shall be construed as prohibiting or limiting the Company, Bank, or any subsidiary or affiliate of the Company or the Bank from exercising any other available rights or remedies for such breach or threatened breach, including, without limitation, the recovery of damages from Executive or others. - 7 - 8 7. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement other than as a result of the provisions of Section 6 hereof, shall be settled exclusively by arbitration. Each party shall appoint one arbitrator and shall notify, in writing, the other party of such appointment and request the other party to appoint one arbitrator within thirty (30) days of receipt of such request. If the party so requested fails to appoint an arbitrator, the party making the request shall be entitled to designate two arbitrators. The two arbitrators shall select a third. The written decision of a majority of the arbitrators shall be binding upon the Bank and Executive and enforceable by law. The arbitrators shall, by majority vote, determine the place for hearing, the rules of procedure, and allocation of the expenses of the arbitration. Absent any written agreement to the contrary, the rules of the American Arbitration Association shall apply to any arbitration proceedings. 8. APPLICATION OF CODE SECTION 280G. If any payment of Severance Benefits hereunder shall be determined to be an "excess parachute payment", as defined by Section 280G of the Internal Revenue Code of 1986, as amended (the "Code" ), which subjects Executive to an excise tax under Section 4999(a) of the Code, the Bank shall pay a supplemental benefit equal to the excise tax and all state and federal income taxes on the supplemental benefit. Executive agrees to fully cooperate with the Bank should the Bank determine to challenge, for whatever reason, any determination by the Internal Revenue Service that Severance Benefits paid hereunder constitute "excess parachute payments" as defined by Section 280G of the Code. 9. SUCCESSORS: BINDING AGREEMENT. (a) This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise), to all or substantially all of the business and/or assets of the Bank regardless of whether such occurrence constitutes a Change in Control hereunder and the Bank and the Company shall require any such successor to expressly assume and agree to perform this Agreement. As used in this Agreement, "Company" and "Bank" shall mean the Company and Bank as herein respectively defined and any successors or assignees to their respective business and/or assets as aforesaid, which is required by this Agreement to assume and perform this Agreement, whether by operation of law or otherwise. In the event any successor to the Company has total assets in excess of $8 billion and does not maintain a Florida-based holding company, then the term "successor" shall only include the bank resulting from such transaction. - 8 - 9 (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there is no such designee, to Executive's estate. 10. MISCELLANEOUS. (a) All notices required or permitted hereunder shall be given in writing by actual delivery or by Registered or Certified Mail (postage prepaid), at the following addresses or at such other places as shall be designated in writing: Executive: Mr. C. William Curtis _______________________________ _______________________________ Bank or the Company: 815 Colorado Avenue Stuart, Florida 34994 Attn: Mr. Dennis S. Hudson, III (b) If any provision of this Agreement shall be determined to be void by any court or arbitrium of competent jurisdiction, then such determination shall not affect any provisions of this Agreement, all of which shall remain in full force and effect. (c) The failure of the parties to complain of any act or omission on the part of either party, no matter how long the same may continue, shall not be deemed to be a waiver of any of its rights hereunder. (d) This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. It may be modified or terminated only by a writing signed by the party against whom enforcement of any waiver, change, modification, extension, discharge or termination is sought. (e) The recitals contained in this Agreement are expressly made a part hereof. (f) This Agreement represents the entire understanding and agreement among the parties and supersedes any prior agreements or understandings with - 9 - 10 respect to the subject matter hereof. It is intended and agreed that the Company, the Bank and its direct and indirect subsidiaries are express beneficiaries of this Agreement and may enforce the provisions hereof to the same extent as the Bank. (g) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Florida. IN WITNESS WHEREOF, Executive has executed this Agreement and the Bank and the Company have caused this Agreement to be executed under seal by their respective undersigned officers, thereunto duly authorized as of the day and year first above written. EXECUTIVE /s/ C. William Curtis (SEAL) ----------------------------------- C. William Curtis FIRST NATIONAL BANK & TRUST COMPANY OF THE TREASURE COAST By: /s/ Dennis S. Hudson, III ------------------------------------- Dennis S. Hudson, III President and Chief Executive Officer SEACOAST BANKING CORPORATION OF FLORIDA By: /s/ Dennis S. Hudson, III ------------------------------------- Dennis S. Hudson, III Executive Vice President & Chief Operating Officer ATTEST: BY: /s/ A. Douglas Gilbert --------------------------------- A. Douglas Gilbert Executive Vice President & Chief Operating & Credit Officer (CORPORATE SEAL) - 10 - EX-13 3 1995 ANNUAL REPORT 1 EXHIBIT 13 Financial Highlights
(Dollars in thousands except per share data) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------------ FOR THE YEAR Net interest income $ 27,090 $ 25,200 $ 26,059 $ 27,477 $ 21,916 Provision for loan losses 250 145 150 1,103 2,775 Noninterest income: Securities gains 480 752 1,204 1,759 476 Other 7,517 6,475 7,588 7,693 6,974 Noninterest expenses 24,246 23,005 24,345 26,655 22,008 Income before income taxes 10,591 9,277 10,356 9,171 4,583 Provision for income taxes 3,765 3,091 3,488 3,022 1,317 Income before cumulative effect of a change in accounting principle 6,826 6,186 6,868 6,149 3,266 Cumulative effect on prior years of a change in accounting for income taxes 0 0 264 0 0 Net income 6,826 6,186 7,132 6,149 3,266 Core earnings (1) 10,425 8,690 10,421 10,234 7,570 Per share data: Income before cumulative effect of a change in accounting principle 1.58 1.44 1.60 1.45 0.92 Cumulative effect on prior years of a change in accounting for income taxes 0.00 0.00 0.06 0.00 0.00 Net income 1.58 1.44 1.66 1.45 0.92 Cash dividends paid: Class A common 0.54 0.49 0.45 0.41 0.40 Book Value 14.75 12.98 14.13 11.71 10.65 Dividends to net income 33.4% 33.5% 26.5% 27.9% 44.7% AT YEAR END Assets $771,348 $662,711 $639,404 $ 613,558 $ 610,171 Securities 213,638 258,661 283,732 292,935 266,775 Net loans 410,898 289,417 255,995 247,754 276,845 Deposits 660,967 559,629 533,486 551,368 560,740 Shareholders' equity (2) 62,200 55,584 60,257 49,707 45,045 Performance ratios: Return on average assets 1.00% 1.02% 1.19% 1.02% 0.60% Return on average equity 11.05 10.69 13.47 12.92 8.38 Net interest margin (3) 4.32 4.57 4.80 5.07 4.52 Average equity to average assets 9.01 9.51 8.81 7.89 7.19 - ----------------------------------------------------------------------------------------------------------------------------------
(1) Income before taxes excluding the provision for loan losses, securities gains and expenses associated with foreclosed and repossessed asset management and dispositions. (2) Includes securities valuation equity (allowance) of $(705,000) in 1995, $(4,391,000) in 1994 and $4,667,000 in 1993 related to adoption of Financial Accounting Standard Board Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities." (3) On a fully taxable equivalent basis. 2 FINANCIAL REVIEW - -------------------------------------------------------------------------------- 1995 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 Consolidated Financial Statements of the Company and the notes thereto, and the Financial Highlights provided on page 3 of this report. Earnings during 1995 were impacted by the acquisition of $62 million in deposits and $46 million in loans of American Bank Capital Corporation of Florida (American) and its subsidiary, American Bank of Martin County, on April 14, 1995. The Company's subsidiary, First National Bank and Trust Company of the Treasure Coast, now has seventeen branches with the addition of one branch resulting from the acquisition. Earnings were also favorably impacted by loan growth and improved trust and brokerage fees and commissions. Net income for 1995 totalled $6,826,000 or $1.58 per share, compared with $6,186,000 or $1.44 per share in 1994 and $7,132,000 or $1.66 per share in 1993. Return on average assets was 1.00 percent and return on average shareholders' equity was 11.05 percent for 1995, compared to the prior year's results of 1.02 percent and 10.69 percent, respectively, and 1993's results which included securities gains of $1,204,000 and the positive impact of $264,000 from the adoption of FASB statement No. 109, "Accounting for Income Taxes", of 1.19 percent and 13.47 percent, respectively.
- --------------------------------------------------------------------------------------------- CONDENSED INCOME STATEMENT AS A PERCENT OF AVERAGE ASSETS Table 1 (Tax equivalent basis) - --------------------------------------------------------------------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------------------------- Net interest income 4.00% 4.21% 4.40% Provision for loan losses 0.04 0.02 0.02 Noninterest income Securities gains 0.07 0.12 0.20 Other 1.10 1.06 1.26 Noninterest expenses 3.53 3.78 4.05 ------------------------------------------ Income before income taxes 1.60 1.59 1.79 Provision for income taxes including tax equivalent adjustment and cumulative effect of a change in accounting principle 0.60 0.57 0.60 ------------------------------------------- NET INCOME 1.00% 1.02% 1.19% =========================================== - ---------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income (fully taxable equivalent) for 1995 increased $1,859,000 or 7.3 percent, with increased business volumes more than offsetting the effect of a decline in the net interest margin from 4.57 percent a year ago to 4.32 percent. While competing institutions in our market lowered deposit rates for savings and NOW deposits, rates paid for other types of deposits increased and resulted in a 32 basis points rise to 2.85 percent for money market deposits and a 142 basis points rise to 5.48 percent for time deposits. In addition, the rate paid for short term borrowings, primarily sweep repurchase agreements with customers of the Company's subsidiary bank, increased 121 basis points to 4.59 percent. The resulting rate paid for all interest bearing liabilities in 1995 was 3.85 percent, 99 basis points higher than in 1994.
- --------------------------------------------------------------------------------- CHANGES IN AVERAGE EARNING ASSETS Table 2 (Dollars in thousands) Increase/(Decrease) Increase/(Decrease) ------------------------------------------------------ 1995 vs 1994 1994 vs 1993 - --------------------------------------------------------------------------------- Securities: Taxable $(35,028) (13.4)% $(12,698) (4.6)% Nontaxable (435) (3.1) 598 4.5 Federal funds sold and other short term investments 25,119 177.8 6,299 80.5 Loans, net 85,713 31.7 14,883 5.8 --------------------------------------------------- TOTAL $ 75,369 13.5% $ 9,082 1.6% ===================================================
In part, a renewed interest by consumers in certificates of deposit offered at higher rates during the second half of 1994 and during 1995 effected an increase in the Company's cost of interest bearing liabilities. Average time deposits increased $78,325,000 or 39.4 percent, while average balances for NOW, savings and money market accounts, which are lower cost interest bearing deposits, declined $14,540,000 or 5.2 percent on an aggregate basis. Favorably affecting deposit mix was an increase in average noninterest bearing demand deposits of $9,084,000 or 14.4 percent. 20 3
- ------------------------------------------------------------------------------------------------------------------------------- RATE/VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS) Table 3 Amount of Increase (Decrease) (Dollars in thousands) 1995 vs 1994 1994 vs 1993 -------------------------------------------------------------------------------- Due to Change in: Due to Change in: Volume Rate Mix Total Volume Rate Mix Total - ------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Securities: Taxable $(2,116) $ 733 $ (98) $(1,481) $ (818) $(1,110) $ 51 $(1,877) Nontaxable (37) (22) 1 (58) 52 (31) (1) 20 -------------------------------------------------------------------------------- (2,153) 711 (97) (1,539) (766) (1,141) 50 (1,857) Federal funds sold and other short term investments 1,118 209 371 1,698 188 115 92 395 Loans 6,915 1,522 483 8,920 1,223 (387) (22) 814 -------------------------------------------------------------------------------- TOTAL INTEREST INCOME 5,880 2,442 757 9,079 645 (1,413) 120 (648) INTEREST EXPENSE NOW (including Super NOW) (166) (52) 5 (213) 97 26 1 124 Savings deposits (245) (31) 5 (271) (169) (108) 10 (267) Money market accounts 205 260 26 491 32 35 0 67 Time deposits 3,178 2,830 1,115 7,123 (144) 302 (6) 152 -------------------------------------------------------------------------------- 2,972 3,007 1,151 7,130 (184) 255 5 76 Federal funds purchased and other short term borrowings (5) 96 (1) 90 55 56 23 134 -------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 2,967 3,103 1,150 7,220 (129) 311 28 210 -------------------------------------------------------------------------------- NET INTEREST INCOME $ 2,913 $ (661) $ (393) $ 1,859 $ 774 $(1,724) $ 92 $ (858) ================================================================================ - -------------------------------------------------------------------------------------------------------------------------------
The yield on earning assets increased 59 basis points during 1995 to 7.63 percent. Yield increases in 1995 for investment securities, federal funds sold and the loan portfolio of 27 basis points, 148 basis points and 56 basis points, respectively, resulted from an improved mix of earning assets. Average earning assets for 1995 increased $75,369,000 or 13.5 percent, compared to the prior year. The acquisition of American and loan demand, which picked up pace during 1995, provided an $85,713,000 or 31.7 percent increase in average loans. While $68 million in residential mortgage loans were originated in 1995, no sales of residential mortgage loans were transacted. Average securities declined $35,463,000 or 12.9 percent to $240,408,000, while average federal funds sold grew $25,119,000 or 177.8 percent. In part, the increase in average federal funds sold is related to securities sales of $115,107,000 and maturities of $62,586,000 occurring over the past twelve months, offset by purchases of securities of $114,244,000. These funds will be utilized to fund 1996 loan growth or will be reinvested.
- ------------------------------------------------------------------------------------------------ CHANGES IN AVERAGE INTEREST BEARING LIABILITIES Table 4 (Dollars in thousands) Increase/(Decrease) Increase/(Decrease) ------------------- ------------------- 1995 vs 1994 1994 vs 1993 - ------------------------------------------------------------------------------------------------ NOW (including Super NOW) $(10,223) (8.6)% $ 6,057 5.3 % Savings deposits (12,431) (16.4) (8,041) (9.6) Money market accounts 8,114 9.9 1,273 1.6 Time deposits 78,325 39.4 (3,686) (1.8) Federal funds purchased and other short term borrowings (133) (1.7) 2,306 40.9 ------------------------------------------------------------- Total $ 63,652 13.2 % $(2,091) (0.4)% ============================================================= - ------------------------------------------------------------------------------------------------
During 1994 and early 1995, the Federal Reserve Bank increased short term interest rates steadily and the prime rate reached 9.00 percent in February of this 21 4
- ----------------------------------------------------------------------------------------------------------------------------------- THREE YEAR SUMMARY Table 5 AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1) (Dollars in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Earning assets: Securities Taxable $226,854 $14,337 6.32% $261,882 $15,818 6.04% $274,580 $17,695 6.44% Nontaxable 13,554 1,135 8.37 13,989 1,193 8.53 13,391 1,173 8.76 ----------------------------------------------------------------------------------------- TOTAL SECURITIES 240,408 15,472 6.44 275,871 17,011 6.17 287,971 18,868 6.55 Federal funds sold and other short term investments 39,246 2,327 5.93 14,127 629 4.45 7,828 234 2.99 Loans (2) 355,885 30,716 8.63 270,172 21,796 8.07 255,289 20,982 8.22 ----------------------------------------------------------------------------------------- TOTAL EARNING ASSETS 635,539 48,515 7.63 560,170 39,436 7.04 551,088 40,084 7.27 Allowance for loan losses (3,845) (3,545) (3,953) Cash and due from banks 24,152 23,737 23,009 Bank premises and equipment 16,769 16,182 17,105 Other assets 13,228 11,951 14,144 ----------------------------------------------------------------------------------------- $685,843 $608,495 $601,393 ========================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: NOW (Including Super NOW) $109,115 $ 1,721 1.58% $119,338 $ 1,934 1.62% $113,281 $ 1,810 1.60% Savings deposits 63,485 1,228 1.93 75,916 1,499 1.97% 83,957 1,766 2.10 Money market accounts 89,836 2,558 2.85 81,722 2,067 2.53% 80,449 2,000 2.49 Time deposits 277,261 15,195 5.48 198,936 8,072 4.06% 202,622 7,920 3.91 Federal funds purchased and other short term borrowings 7,816 359 4.59 7,949 269 3.38% 5,643 135 2.39 ----------------------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 547,513 21,061 3.85 483,861 13,841 2.86% 485,952 13,631 2.81 Demand deposits 72,310 63,226 58,807 Other liabilities 4,258 3,518 3,679 ----------------------------------------------------------------------------------------- 624,081 550,605 548,438 Shareholders' Equity 61,762 57,890 52,955 ----------------------------------------------------------------------------------------- $685,843 $608,495 $601,393 ========================================================================================= Interest expense as % of earning assets 3.31% 2.47% 2.47% Net interest income/yield on earnings assets $27,454 4.32% $25,595 4.57% $26,453 4.80% ========================================================================================= - -----------------------------------------------------------------------------------------------------------------------------------
(1) The tax equivalent adjustment is based on a 34% tax rate. (2) Nonaccrual loans are included in loan balances. Fees on loans are included in interest on loans. 22 5 year. Since July, the Federal Reserve Bank has lowered short term rates 50 basis points, with an identical decline in the prime rate. Consensus opinion among economists indicates lower inflation and a weaker economy are expected, particularly if the United States Congress and the President concur on lower federal government expenditures. This may result in further short term rate cuts by the Federal Reserve Bank and a lower prime rate. Expectations within the markets the Company serves are for loan demand to remain strong during 1996, with loans exceeding anticipated deposit growth on a percentage basis. While the Company's average earning assets increased slightly during 1994 and the mix of average earning assets improved, the yield on earning assets declined 23 basis points in 1994 to 7.04 percent while the rate paid for interest bearing liabilities increased 5 basis points to 2.86 percent. As such, the Company's net interest income (fully taxable equivalent) in 1994 declined $858,000 or 3.2 percent compared to 1993's results. The decline in yield on earning assets in 1994 resulted from the restructuring of earning assets which began in late 1993 and continued in 1994. The restructuring consisted of moving more earning assets into adjustable rate products from higher yielding fixed rate instruments which had substantially more interest rate volatility in a rising interest rate environment. Average loan balances increased $14,883,000 or 5.8% during 1994. The Company originated $59 million of residential mortgage loans during 1994 and sold fixed rate residential mortgage loans totalling $24.7 million as part of the Company's asset liability management restructuring. The yield on loans of 8.07 percent for 1994 was 15 basis points lower than in 1993. Average securities balances declined $12,100,000 or 4.2 percent and the yield on securities declined 38 basis points during 1994, from 6.55 percent to 6.17 percent. Proceeds from the sale of securities of $72,521,000 and maturities of $32,997,000 were offset by purchases of $94,650,000. Securities with longer durations were sold and replaced with securities having shorter durations. While average time and savings deposits declined $3,686,000 or 1.8 percent and $8,041,000 or 9.6 percent, respectively, during 1994, NOW accounts and money market accounts increased $6,057,000 or 5.3 percent and $1,273,000 or 1.6 percent, respectively. Average demand deposits grew $4,419,000 or 7.5 percent. Excess liquidity in the Treasure Coast market held deposit rate increases to a minimum during the first half of 1994. During the second half of 1994, a renewed interest by consumers in certificates of deposit effected an increase in the Company's cost of interest bearing liabilities. For the years ended December 31, 1995 and 1994, Table 3 discloses the increases and decreases in net interest income attributable to changes in the volume and rates of individual earning assets and interest bearing liabilities. The balances of nonaccruing loans are included in average loans outstanding. PROVISION FOR LOAN LOSSES The factors of our improved loan demand, and growth in loans outstanding, offset by continued improvement in net charge offs (decline from $394,000 in 1994 to $113,000 in 1995) resulted in minimal provisioning for loan losses in 1995 of $250,000. The provision for loan losses in 1994 was $145,000, a decline of $5,000 when compared to 1993. See "Nonperforming Assets" and "Allowance for Loan Losses." The Company's internal loan monitoring systems provide detailed monthly analysis of delinquencies, nonperforming assets, and potential problem loans, which are reviewed regularly by the Board of Directors. Management determines the provision for loan losses which is charged to operations by constantly analyzing and monitoring delinquencies, nonperforming loans and the level of outstanding balances for each loan category, as well as the amount of net charge offs, and by estimating losses inherent in its portfolio. While the Company's policies and procedures used to estimate the monthly provision for loan losses charged to operations are considered adequate by management and are reviewed from time to time by the Office of the Comptroller of the Currency, there exist factors beyond the control of the Company, such as general economic conditions both locally and nationally, which make management's judgment as to the adequacy of the provision necessarily approximate and imprecise. Due to increased loan balances, management forecasts a likelihood of higher provisioning for loan losses in 1996 than in 1995 and 1994. NONINTEREST INCOME Table 6 shows noninterest income for the years indicated. Noninterest income, excluding gains from sales of securities, increased $1,042,000 or 16.1 percent in 1995 compared to prior year. The largest increase in noninterest income occurred in service charges on deposits which increased $421,000 or 20.7 percent. Service charges on deposits grew during the year as a result of the acquisition and certain services being repriced. The next two largest increases in noninterest income during 1995 were in brokerage commissions and fees and trust fees which increased $365,000 or 30.7 23 6 percent and $186,000 or 10.8 percent, respectively, year over year. The financial market turmoil during 1994 carried into 1995 culminating in first quarter 1995's lower volumes of business. However, results during the remainder of 1995 indicate an improving trend and renewed interest by consumers to invest in financial markets. Additional sales staff in trust and the repricing of trust services favorably impacted results for the year. The Company intends to continue to emphasize its brokerage and trust services to both existing and new customers, as expectations are that financial markets will remain robust in 1996.
- ------------------------------------------------------------------------------------------------------------ NONINTEREST INCOME Table 6 (Dollars in thousands) Year Ended % Change --------------------------------------------------------- 1995 1994 1993 95/94 94/93 - ------------------------------------------------------------------------------------------------------------ Service charges on deposit accounts $2,454 $2,033 $2,208 20.7% (7.9)% Trust fees 1,908 1,722 1,785 10.8 (3.5) Other service charges and fees 1,098 1,028 1,105 6.8 (7.0) Brokerage commissions and fees 1,555 1,190 1,753 30.7 (32.1) Other 502 502 737 0.0 (31.9) --------------------------------------------------------- 7,517 6,475 7,588 16.1 (14.7) Securities gains 480 752 1,204 (36.2) (37.5) --------------------------------------------------------- TOTAL $7,997 $7,227 $8,792 10.7% (17.8)% ========================================================= - ------------------------------------------------------------------------------------------------------------
Noninterest income, excluding gains from sales of securities, declined $1,113,000 or 14.7 percent in 1994 compared to 1993. As noted above, the environment for financial products in 1994 was in turmoil due to an uncertain rate of economic growth and inflation. As a result, brokerage commissions and fees earned by the Company declined by $563,000 or 32.1 percent in 1994 when compared to 1993. A decrease in service charges on deposits of $175,000 or 7.9 percent also occurred when 1994's results are compared to 1993. Higher average balances maintained by customers in their demand, NOW, savings and money market account deposits reduced the opportunity for such charges to be incurred. Residential real estate lending is an important segment of the Company's lending activities, and exposure to market interest rate volatility is managed at times by the sale of fixed rate loans in the secondary market. Many fixed rate mortgages were generated during the low interest rates in 1993, while the rising rates of 1994 had consumers switching to lower initial rate periodic adjustable rate mortgages. While no sales were recorded in 1995, during 1994 gains of $45,000 on the sale of $24.7 million in fixed rate residential mortgages were recognized and included in other income. In comparison, a gain of $277,000 on the sale of $25.5 million in such loans was recorded in 1993 in other income. A decline in other service charges and fees of $77,000 or 7.0 percent which occurred in 1994 versus 1993 was due to late charges on loans declining, as a result of reduced loan delinquencies, and lower loan servicing income as a result of loan sales in 1993 and 1994. During 1995, as interest rates declined and the market value of the securities portfolio increased, sales of securities generated a net gain of $480,000. The proceeds from sales and funds received from maturation have been utilized to fund seasonal deposit declines and to fund lending activities. The amount of gains on sales of securities realized for the years ended December 31, 1994 and 1993 resulted from uncertain economic environments. During 1994, securities sales were executed to reduce the Company's exposure to predicted increasing interest rates in the future. As a result, a net gain of $752,000 was recognized in 1994. In 1993, in anticipation of the adoption of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", at December 31, 1993, management's intent to hold certain securities as investments changed in September, 1993. Therefore, some securities were sold, creating gains, while others were identified as held for sale. As a result, a net gain of $1,204,000 was recorded in 1993. NONINTEREST EXPENSES Table 7 shows the Company's noninterest expenses for the years indicated. When compared to 1994, noninterest expenses increased $1,241,000 or 5.4 percent. The largest component of this increase was salaries and wages which increased $968,000 or 11.1 percent. A new branch opened in November 1994 in Port St. Lucie, Florida and a new branch acquired from American on April 14, 1995 increased salaries and wages $158,000. In addition, wages for lending personnel grew $126,000 when compared to prior year, effected by increased loan demand. Also, salaries related to trust and brokerage activities increased $229,000 and $147,000, respectively. Employee benefits increased $136,000 or 7.5 percent, due to a $97,000 increase in group health insurance benefits, higher payroll taxes and increased costs associated with the Company's 401K salary deferral plan and profit sharing expense. Occupancy expenses and furniture and equipment expenses, on an aggregate basis, declined $26,000. Marketing expenses increased $105,000 or 8.3 percent, primarily as a result of increases in sales promotion and public relations costs, reflecting heightened efforts to market products and services within the Company's market. 24 7 Legal and professional fees decreased $126,000 or 16.4 percent and costs associated with foreclosed and repossessed asset management totalled only $64,000. These results reflect lower activity levels with respect to problem assets in 1995.
- ------------------------------------------------------------------------------------------------------------ NONINTEREST EXPENSES Table 7 (Dollars in thousands) Year Ended % Change --------------------------------------------------------- 1995 1994 1993 95/94 94/93 - ------------------------------------------------------------------------------------------------------------ Salaries and wages $ 9,650 $ 8,682 $ 9,188 11.1% (5.5)% Pension and other employee benefits 1,951 1,815 1,850 7.5 (1.9) Occupancy 2,331 2,230 2,251 4.5 (0.9) Furniture and equipment 1,900 2,027 2,231 (6.3) (9.1) Marketing 1,367 1,262 996 8.3 26.7 Legal and professional fees 742 888 860 (16.4) 3.3 FDIC assessments 728 1,191 1,297 (38.9) (8.2) Foreclosed and repossessed asset management and dispositions, 64 20 1,119 220.0 (98.2) Amortization of intangibles 418 88 84 375.0 4.8 Other 5,095 4,802 4,469 6.1 7.5 --------------------------------------------------------- TOTAL $24,246 $23,005 $24,345 5.4% (5.5)% ========================================================= - ------------------------------------------------------------------------------------------------------------
The premium for Federal Deposit Insurance Corporation (FDIC) insurance was $463,000 or 38.9 percent lower in 1995, compared to prior year. Since 1989, the annual premium rate had increased from 0.09 percent of total deposits to 0.23 percent of total deposits for both commercial banks and savings and loans. The rate assessed on deposits was reduced in mid-1995 for commercial banks to a range of 0.04 percent to 0.10 percent, depending on the capital adequacy and examination ratings imposed by governing bank regulatory authorities on individual financial institutions. This action by the FDIC effected the reduction in expense for 1995. The rate charged to savings and loans remained unchanged, ranging from 0.23 percent to 0.29 percent. The rate the Company's subsidiary bank is being assessed is the lowest rate indicated, based on the guidelines. Amortization of intangible assets increased $330,000 or 375.0 percent as a result of the acquisition of American, for which the Company recorded amortizable assets for goodwill and core deposit intangible. The other expense category increased $293,000 or 6.1 percent in 1995 year over year. The increase was primarily caused by higher postage and special delivery expenditures and telephone costs, up $154,000 and $101,000, respectively. When compared to 1993, noninterest expenses for 1994 decreased $1,340,000 or 5.5 percent. These results reflect the Company's efforts to reduce overhead expenses, without impacting marketing initiatives and service levels provided to bank clients. The level of noninterest expenses was favorably impacted as a result of efforts to improve productivity, reflected by salaries and wages decreasing $506,000 or 5.5 percent in 1994 compared to 1993. A corresponding decrease for pension and other employee benefits of $35,000 or 1.9 percent was recorded as well. A decline of $183,000 was recorded for the Company's 401K salary deferral plan and profit sharing plan expense. This decrease was offset by a decrease of $142,000 in pension income recognized in 1994 compared to 1993 (See "Footnote H" to the Consolidated Financial Statements). Costs associated with foreclosed and repossessed asset management in 1994 decreased $1,099,000 or 98.2 percent to $20,000 when compared to 1993, entirely due to the sale of other real estate owned during the year. Offsetting this decline was an increase in marketing expenses of $266,000 or 26.7 percent in 1994. Increased use of direct mail, print and television media directly focused to key market segments the Company serves was utilized in 1994 but was not used in 1993. The other expense category increased $337,000 or 7.4 percent in 1994 compared to 1993. In part, the increase in 1994 was due to the settlement of a legal dispute by the Company's insurance carrier to avoid future legal costs of a trial. The Company's share of the settlement (the insurance deductible) of $190,000 was charged to other expense. Remaining growth in other expense was related to increased business volumes. Federal Deposit Insurance Corporation (FDIC) assessments the Company paid declined 8.2 percent in 1994. INCOME TAXES Income taxes for the year 1995 were $3,765,000, 21.8 percent above the $3,091,000 for 1994, which was 11.4 percent below the $3,488,000 for 1993. The Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" was adopted in the first quarter of 1993, as required. Due to the cumulative effect on prior years of its adoption, net income in the first quarter and for the year 1993 was $264,000 or $0.06 per share higher. Income taxes as a percentage of income before taxes, excluding the effect of SFAS No. 109, were 35.5 percent for 1995, compared to 33.0 percent in 1994 and 33.7 percent in 1993. The increase in rate in 1995 reflects a higher rate of provisioning for state income taxes, a result of lower intangible taxes paid that can be taken as a credit. Conversely, the lower rate in 1994 compared to 1993 reflects a lower rate of provisioning for state income taxes, a result of the State of Florida permitting an increase in the amount of intangible tax that can be taken as a credit. 25 8 Although the Company has $1,627,000 of deferred tax assets, no valuation allowance has been recorded because $402,000 of this balance is related to unrealized losses which, as a result of SFAS No. 115, are deemed to be temporary, as well as, sufficient taxable income to carryback to recover these differences. FINANCIAL CONDITION The Company increased its assets 16.4 percent between December 31, 1994 and December 31, 1995. In comparison, the Company increased its assets 3.6 percent between December 31, 1993 and December 31, 1994. CAPITAL RESOURCES Table 8 summarizes the Company's capital position and selected ratios.
- ------------------------------------------------------------------------------------------------------------- CAPITAL RESOURCES Table 8 (Dollars in thousands) December 31 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------- TIER 1 CAPITAL Common stock $ 429 $ 428 $ 426 Additional paid in capital 18,612 18,498 18,231 Retained earnings 45,540 41,049 36,933 Treasury Stock (1,676) 0 0 Valuation allowance (1,016) (1,942) (330) Goodwill (4,409) (0) (0) -------------------------------------------------- Total Tier 1 capital 57,480 58,033 55,260 TIER 2 CAPITAL Allowance for loan losses, as limited 4,066 3,373 3,622 -------------------------------------------------- Total Tier 2 capital 4,066 3,373 3,622 -------------------------------------------------- Total risk based capital $ 61,546 $ 61,406 $ 58,882 ================================================== Risk weighted assets $409,677 $314,489 $ 298,871 ================================================== Tier 1 risk based capital ratio 14.03% 18.45% 18.49% Regulatory minimum 8.00 8.00 8.00 Total risk based capital ratio 15.02 19.53 19.70 Tier 1 capital to adjusted total assets (1) 7.78 9.19 8.97 Regulatory minimum 4.00 4.00 4.00 Shareholders' equity to assets 8.06 8.39 9.42 Average shareholders' equity to average total assets 9.01 9.51 8.81 - ------------------------------------------------------------------------------------------------------------- (1) Intangible assets have been deducted from tier 1 capital and adjusted total assets for this calculation. - -------------------------------------------------------------------------------------------------------------
The Company's ratio of shareholders' equity to period end assets was 8.06 percent at December 31, 1995, compared with 8.39 percent one year earlier. The decrease in 1995 reflects additional assets of $69 million resulting from the acquisition of American. In addition, this ratio is impacted by SFAS No. 115, "Accounting for Certain Debt and Equity Securities," by which a securities valuation allowance of $705,000 was recognized at December 31, 1995, compared to a securities valuation allowance of $4,391,000 at December 31, 1994. Excluding the effect of this standard, the Company's ratio of shareholders' equity to period end assets was 8.16 percent and 9.05 percent, respectively, at year end 1995 and 1994. Book value per common share outstanding totalled $14.75 at December 31, 1995, compared to $12.98 at December 31, 1994. Without the effect of SFAS No. 115, book value was $14.92 at December 31, 1995, compared to $14.01 at December 31, 1994, an increase of 7.0 percent. Tangible book value per common share, reflecting a deduction from shareholders' equity for intangible assets of $6,884,000 and $480,000 at December 31, 1995 and 1994, respectively, was 13.12 percent at December 31, 1995, compared to 12.87 percent at December 31, 1994, an increase of 1.9 percent. The Company is considered well capitalized, based on all measures of regulatory capital. LOAN PORTFOLIO Table 9 shows total loans (net of unearned income) by category outstanding at the indicated dates. The Company makes substantially all its loans to customers located within the three counties of the Treasure Coast. It has no foreign loans or highly leveraged transaction (HLT) loans.
- ---------------------------------------------------------------------------------------------------------- LOANS OUTSTANDING Table 9 (Dollars in thousands) December 31 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------- Real estate mortgage $335,031 $229,713 $205,002 $197,696 $213,443 Real estate construction 10,540 8,728 2,710 3,680 3,240 Commercial and financial 17,205 11,296 9,692 8,626 12,150 Installment loans to individuals 51,959 42,912 42,158 41,430 51,746 Other loans 229 141 55 413 112 ---------------------------------------------------------------- TOTAL $414,964 $292,790 $259,617 $251,845 $280,691 ================================================================ - ----------------------------------------------------------------------------------------------------------
Total loans (net of unearned income and excluding the allowance for loan losses) were $414,964,000 at December 31, 1995, $122,174,000 or 41.7 percent more than at December 31, 1994. Approximately $46 million in loans were acquired 26 9 as a result of the acquisition of American during 1995. The increase in the Company's loan balances also reflects the impact of the sale of $24.7 million in fixed rate residential mortgage loans during 1994. No sales of fixed rate residential loans were transacted in 1995. At December 31, 1995, the Company's mortgage loan balances secured by residential properties amounted to $223,813,000 or 53.9 percent of total loans. The next largest concentration was loans secured by commercial real estate which totalled $100,879,000 or 24.3 percent. Most of the commercial real estate loans were made to local businesses and professionals secured by owner occupied properties. Loans and commitments for 1-4 family residential properties and commercial real estate are generally secured with first mortgages on property, with the loan to fair value of the property not exceeding 80 percent on the date the loan is made. The Company was also a creditor for consumer loans to individual customers (primarily secured by motor vehicles) totalling $44,249,000 and unsecured credit cards of $7,710,000. Total loans (net of unearned income and excluding the allowance for loan losses) were $292,790,000 at December 31, 1994, $33,173,000 or 12.8 percent greater than at December 31, 1993. At December 31, 1994, the Company's portfolio of mortgage loan balances secured by residential properties amounted to $144,893,000 or 49.5 percent of total loans and loans secured by commercial real estate totalled $75,831,000 or 25.9 percent of total loans. Consumer loans to individual customers and credit card loans totalled $36,525,000 and $7,263,000, respectively. The Treasure Coast is a residential community with commercial activity centered in retail and service businesses serving the local residents. Therefore, real estate mortgage lending is an important segment of the Company's lending activities. Exposure to market interest rate volatility with respect to mortgage loans, is managed by attempting to match maturities and repricing opportunities for assets against liabilities, when possible. At December 31, 1995, approximately $141 million or 63 percent of the Company's mortgage loan balances secured by residential properties were adjustable, of which $138 million were adjustable rate 15-or 30-year mortgage loans (ARMs) that reprice based upon the one year constant maturity United States Treasury Index plus a margin. These 15-and 30-year ARMs generally consist of three types: 1) those repricing annually by up to one percent with a four percent cap over the life of the loan, of which balances of approximately $38 million were outstanding at December 31, 1995, 2) those limited to a two percent per annum increase and a six percent cap over the life of the loan, of which approximately $81 million in balances existed at year end 1995, and 3) those that have a fixed rate for a period of three, five or seven years, at the end of which they are limited to a two percent per annum increase and a four percent cap over the life of the loan, of which approximately $19 million were outstanding at December 31, 1995. Of the $68 million of new residential loans originated in 1995, $39 million were adjustable rate and $29 million were fixed rate. The Company generally sells all of the 30-year fixed rate loan originations while retaining a portion of 15-year fixed rate residential loans. However, as a result of interest rates declining during 1995, the Company chose to not sell fixed rate residential loans. Loans secured by residential properties having fixed rates totalled approximately $83 million at December 31, 1995, of which 15-and 30-year mortgages totalled approximately $45 million and $23 million, respectively. Remaining fixed rate balances were comprised of home improvement loans with short maturities less than 15 years.
- ------------------------------------------------------------------------------------------------------------------------- LOAN MATURITY DISTRIBUTION Table 10 (Dollars in thousands) Commercial, Financial & Real Estate December 31, 1995 Agricultural Construction Total - ------------------------------------------------------------------------------------------------------------------------- In one year or less $ 5,333 $ 9,709 $15,042 After one year but within five years: Interest rates are floating or adjustable 2,983 831 3,814 Interest rates are fixed 6,007 0 6,007 In five years or more: Interest rates are floating or adjustable 1,192 0 1,192 Interest rates are fixed 1,690 0 1,690 ------------------------------------------------------------------- Total $17,205 $10,540 $27,745 =================================================================== - -------------------------------------------------------------------------------------------------------------------------
The Company's historical charge off rates for residential loans has been very low, with only $31,000 in charge offs for the year 1995. The Company expects that the 1996 residential loan demand will be comprised of mostly fixed rate mortgages as a low interest rate environment is anticipated. Fixed rate and adjustable rate lending for commercial real estate loans totalled approximately $33 million and $68 million, respectively. Of the $68 million, $45 million of commercial real estate loans adjust annually based on the one-year constant maturity United States Treasury Index plus a margin. Remaining adjustable rate commercial real estate loans are comprised of 3-and 5-year balloon mortgages tied to United States Treasury Indices plus a margin or loans tied to prime rate which adjust accordingly. The term for fixed rate lending involving commercial real estate is generally seven to ten years. 27 10 Commercial lending activities are directed principally towards businesses whose demand for funds are within the Company's lending limits, such as small-to medium-sized professional firms, retail and wholesale outlets, and light industrial and manufacturing concerns. Such businesses typically are smaller, often have short operating histories and do not have the sophisticated record keeping systems of larger entities. Most of such loans are secured by real estate used by such businesses, although certain lines are unsecured. Such loans are subject to the risks inherent to lending to small-to medium-sized businesses including the effects of a sluggish local economy, possible business failure, and insufficient cash flows. The Company's commercial loan portfolio totalled $17,205,000 at December 31, 1995 compared to $11,296,000 at December 31, 1994. The Company makes a variety of consumer loans, including installment loans, loans for automobiles, boats, home improvements, and other personal, family and household purposes, and indirect loans through dealers, to finance automobiles. Most consumer loans are secured. The Company's indirect automobile lending risks have been reduced through screening and monitoring of a smaller number of dealers with whom the Company does business. Management believes its present practices have substantially reduced such risk. Its delinquencies and losses in this area improved in 1995 and 1994. Second mortgage loans and home equity lines also are extended by the Company. No negative amortization loans or lines are offered at the present time. Terms of second mortgage loans include fixed rates for up to 10 years on
- -------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF LOAN LOSS EXPERIENCE Table 11 (Dollars in thousands) Year Ended December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses Beginning balance $ 3,373 $ 3,622 $ 4,091 $ 3,846 $ 3,744 Provision for loan losses 250 145 150 1,103 2,775 Allowance applicable to loans of purchased company 556 0 0 0 0 Charge offs: Commercial and financial 53 89 52 109 487 Consumer 395 442 501 788 1,619 Commercial real estate 54 288 378 413 1,041 Residential real estate 31 0 25 96 85 -------------------------------------------------------- TOTAL CHARGE OFFS 533 819 956 1,406 3,232 Recoveries: Commercial and financial 67 166 64 151 316 Consumer 205 206 253 288 238 Commercial real estate 146 39 14 103 0 Residential real estate 2 14 6 6 5 -------------------------------------------------------- TOTAL RECOVERIES 420 425 337 548 559 -------------------------------------------------------- Net loan charge offs 113 394 619 858 2,673 -------------------------------------------------------- ENDING BALANCE $ 4,066 $ 3,373 $ 3,622 $ 4,091 $ 3,846 ======================================================== Loans outstanding at end of year* $414,964 $292,790 $259,617 $251,845 $280,691 Ratio of allowance for loan losses to loans outstanding at end of year 0.98% 1.15% 1.40% 1.62% 1.37% Daily average loans outstanding* $355,885 $270,172 $255,289 $262,924 $296,217 Ratio of net charge offs to average loans outstanding 0.03% 0.15% 0.24% 0.33% 0.90% - --------------------------------------------------------------------------------------------------------------------------------
* Net of unearned income. 28 11 smaller loans of $30,000 or less. Such loans are sometimes made for larger amounts, with fixed rates, but with balloon payments upon maturities, not exceeding five years. In 1992, the Company began offering variable rate second mortgage loans with terms of up to 10 years. Loan to value ratios for these loans do not exceed 80 percent of appraised value. Home equity lines are offered on a variable rate basis only and the maximum loan to value ratio for such loans is 75 percent of the appraised value when the loan is extended. Home equity line accounts are subject to a periodic review by the bank, to limit the Company's exposure to possible decreases in the borrower's income or in the collateral value of the residence. Commercial real estate loans are subject to many of the same risks as other commercial loans. To reduce the risks from loans dependent upon cash flows from the sale or rental of commercial real estate, the Company primarily makes such loans on owner occupied properties. Real estate construction loans during 1991 and through 1995 have averaged approximately $5,780,000 and totalled $10,540,000 at December 31, 1995. The Company generally requires a binding take-out commitment confirmed to the Company before it will make a real estate construction or development loan, unless the Company has determined to make the permanent loan. This reduces the risk that the Company will inadvertently become the permanent lender. The Company had commitments to make loans (excluding unused home equity lines of credit and credit card lines) of $17,687,000 at December 31, 1995, compared to $17,021,000 at the end of 1994. ALLOWANCE FOR LOAN LOSSES Table 11 provides certain information concerning the Company's allowance for loan losses for the years indicated. The allowance for loan losses was $4,066,000 at December 31, 1995, $693,000 higher than one year earlier. Of this increase, $556,000 was allowance applicable to loans of American, acquired in April of 1995. The ratio of the allowance for loan losses to total loans outstanding (net of unearned income) was 0.98 percent at December 31, 1995. The ratio was 1.15 percent at December 31, 1994. The allowance for loan losses as a percentage of nonaccrual loans was 79.6 percent at December 31, 1995, compared to 150.9 percent at December 31, 1994. Nonaccrual loans at December 31, 1995, were $5,105,000 or 1.23 percent compared to $2,235,000 or 0.76 percent of outstanding loans at December 31, 1994. The model utilized to analyze the adequacy of the allowance for loan and lease losses takes into account such factors as credit quality, internal control audit results, staff turnover, local market economics and loan growth. The resulting lower allowance level necessitated is also reflective of the bank's favorable and consistently improving delinquency trends and historical loss performance. These performance results are attributed to conservative, long-standing and consistently applied loan policies and to a knowledgeable, experienced and stable staff. During 1995, the Company experienced net charge offs of $113,000, compared to $394,000 one year earlier, a 71.3 percent reduction. Net charge offs as a percentage of average loans outstanding were 0.03 percent for 1995, the lowest percentage the Company has experienced since its inception in 1983. A peer group of banks of similar size experienced a net charge off ratio of 0.20 percent through September 30, 1995. Net consumer loan losses, primarily related to indirect automobile lending, were $190,000 in 1995, versus $236,000 in 1994. Real estate net recoveries of $64,000 in 1995 compared to net charge offs of $235,000 in 1994. Net commercial and financial loan recoveries were $14,000 in 1995 compared to $77,000 in 1994. Table 12 summarizes the Company's allocation of the allowance for loan losses to each type of loan and information regarding the composition of the loan portfolio at the dates indicated.
- -------------------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES Table 12 (Dollars in thousands) Allowance Amount December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- Commercial and financial loans $ 275 $ 233 $ 295 $ 287 $ 277 Real estate loans 3,108 2,486 2,812 2,908 2,322 Installment loans 683 654 515 896 1,247 ---------------------------------------------------- TOTAL $4,066 $3,373 $3,622 $4,091 $3,846 ===================================================== - -------------------------------------------------------------------------------- Percent of Loans in Each Category to Total Loans December 31 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- Commercial and financial loans 4.2% 3.9% 3.8% 3.6% 4.4% Real estate loans 83.3 81.4 80.0 79.9 77.2 Installment loans 12.5 14.7 16.2 16.5 18.4 -------------------------------------------------------- TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% ======================================================== - -----------------------------------------------------------------------------------
The allowance for loan losses represents management's estimate of an amount adequate in relation to the risk of future losses inherent in the loan portfolio. In its continuing evaluation of the allowance and its adequacy, management considers, among other factors, the Company's loan loss experience, the amount of past due and nonperforming loans, current and anticipated economic conditions, and the values of certain loan collateral, and other assets. The size of the allowance also reflects the 29 12 large amount of permanent residential loans held by the Company whose historical charge offs and delinquencies have been superior by any comparison. While it is the Company's policy to charge off in the current period loans in which a loss is considered probable, there are additional risks of future losses which cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of economy as well as conditions affecting individual borrowers, management's judgment of the allowance is necessarily approximate and imprecise. It is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses in comparison to a group of peer companies identified by the regulatory agencies. In assessing the adequacy of the allowance, management relies predominantly on its ongoing review of the loan portfolio, which is undertaken both to ascertain whether there are probable losses which must be charged off and to assess the risk characteristics of the portfolio in the aggregate. This review considers the judgments of management, and also those of bank regulatory agencies that review the loan portfolio as part of their regular examination process. An examination by the Office of the Comptroller of the Currency during the year revealed no major differences in judgments or methodology related to the allowance for loan losses. On December 31, 1994, the allowance for loan losses was $3,373,000, $249,000 lower than one year earlier. The ratio of the allowance for loan losses to net loans outstanding was 1.15 percent at December 31, 1994, compared to 1.40 percent at December 31, 1993. For 1994, the Company had net charge offs of $394,000 compared to $619,000 for the same period in 1993. Real estate loan net charge offs were $235,000 for 1994 versus $383,000 for the comparable period in 1993. Consumer loan losses were $236,000 for 1994, compared to $248,000 for 1993. Commercial and financial loan recoveries were $77,000 for 1994 versus $12,000 for 1993. Since 1991, the Company's policy has been to transfer foreclosed loans to other real estate owned and to record such other assets at the lower of (i) the loans carrying value or (ii) 90 percent of the real estate collateral's current appraised value. NONPERFORMING ASSETS At December 31, 1995, the Company's ratio of nonperforming assets to loans outstanding plus other real estate owned was 1.44 percent, compared to 0.82 percent at December 31, 1994. The majority of the increase in the ratio can be attributed to nonperforming loans of the acquired bank. This ratio would be 0.89 percent without the acquired problem loans. Nonperforming assets (other real estate owned and nonaccrual loans) at December 31, 1995, were $5,994,000, an increase of $3,594,000 compared to December 31, 1994. Other real estate owned increased $724,000 while nonaccrual loans increased $2,870,000 over the past twelve months. Nonaccrual loans totalled $2,235,000 at December 31, 1994, compared to a balance of $3,107,000 at year end 1993. Nonaccrual loans totalling $3,625,000 at December 31, 1995 were performing, but because the Company has determined that the collection of principal or interest in accordance with the original terms of such loans is uncertain, it has placed such loans on nonaccrual status. Of the amount reported in nonaccrual loans at December 31, 1995, 96.1 percent is secured with real estate, the remainder is ninety percent guaranteed by the Small Business Administration (SBA). Management does not expect significant losses, for which an allowance for loan losses has not been provided, associated with the ultimate realization of these assets. Nonperforming assets are subject to changes in the economy, both nationally and locally, changes in monetary and fiscal policies, and changes in conditions affecting various borrowers from the Company's subsidiary bank. No assurance can be given that nonperforming assets will not in fact increase or otherwise change. A similar judgmental process is involved in the methodology used to estimate and establish the Company's allowance for loan losses.
- ------------------------------------------------------------------------------------------------------------- NONPERFORMING ASSETS Table 13 (Dollars in thousands) December 31 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------- Nonaccrual loans (1) $ 5,105 $ 2,235 $ 3,107 $ 4,359 $ 5,333 Renegotiated loans 0 0 0 0 0 Other real estate owned 889 165 4,116 5,898 8,217 -------------------------------------------------------------- TOTAL NONPERFORMING ASSETS $ 5,994 $ 2,400 $ 7,223 $ 10,257 $ 13,550 ============================================================== Amount of loans outstanding at end of year (2) $414,964 $292,790 $259,617 $251,845 $280,691 Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period(1). 0.44% 0.82% 2.74% 3.98% 4.69% Accruing loans past due 90 days or more $ 134 $ 0 $ 15 $ 9 $ 488 - -------------------------------------------------------------------------------------------------------------
(1) Interest income that could have been recorded during 1995 related to nonaccrual loans was $168,000, none of which was included in interest income or net income. All nonaccrual loans are secured. (2) Net of unearned income. - ------------------------------------------------------------------------------ Nonperforming assets (other real estate owned and nonaccrual loans) at December 31, 1994, were $2,400,000, a decrease of $4,823,000 or 66.8 percent 30 13 from December 31, 1993. At December 31, 1994, the Company's ratio of nonperforming assets to loans outstanding plus other real estate owned was 0.82 percent, compared to 2.74 percent at December 31, 1993. The decrease in nonperforming assets from December 31, 1993 to December 31, 1994 included decreases in other real estate owned of $3,951,000 and nonaccrual loans of $872,000. SECURITIES Information relating to yields, maturities, carrying values, market values and unrealized gains (losses) of the Company's securities is set forth in Table 14. At December 31, 1995 the Company had $159,480,000 or 74.6 percent of total securities held for sale compared to $131,288,000 or 51.5 percent at December 31, 1994. The increase in the held for sale portfolio is directly related to regulatory authorities permitting a 45-day window (November 15, 1995 to December 31, 1995) for financial institutions to reclassify securities from held to maturity to available for sale without the reclassification creating a "tainting" of the portfolio which would require reclassification of all held to maturity securities to held for sale. The 45-day window to reclassify securities was made available as a result of financial institutions not having guidance with respect to the inclusion or exclusion of unrealized gains or losses in capital ratio calculations at December 31, 1993, when SFAS No. 115 was adopted. The Company reclassified approximately $69 million from held to maturity to held for sale on December 1, 1995. Total securities declined $45,023,000 or 17.4 percent in 1995, compared to prior year. This decline is directly related to growth in the loan portfolio and changes in the portfolio mix. During 1995 management lowered the total portfolio's interest rate risk by reducing the average life of the portfolio from 3.8 years to 3.1 years. The percentage of adjustable and floating rate securities in the securities portfolio is 25.3 percent, compared to 29.6 percent in 1994. Likewise, the held for sale portfolio decreased to an average life of 3.7 years from 5.9 years in 1994. A total of $9,012,000 in securities will mature along with approximately $21 million of periodic principal payments from mortgage back securities in 1996. Management believes most of these funds will be used to fund increases in its consumer and commercial loan portfolio. Lower interest rates caused an increase in the unrealized appreciation of $9,777,000 at December 31, 1995 for the total portfolio. At December 31, 1994 the Company had unrealized net losses of $8,721,000 or 3.4 percent of amortized cost. 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 FFIEC definition of a high risk investment. The Company's securities portfolio decreased $25,071,000 from December 31, 1993 to December 31, 1994. The investment portfolio as a percentage of earning assets was 42.1 percent at December 31, 1994, compared to 48.0 percent one year earlier.
- -------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Table 14 Gross Gross Amortized Unrealized Unrealized Market Average Years December 31, 1994 Cost Gains Losses Value to Maturity - -------------------------------------------------------------------------------------------------------------------------- Held for Sale: U.S. Treasury and U.S. Government Agencies $ 59,123 $ 73 $ (510) $ 58,686 1.66 Mortgage Backed Securities: Fixed 23,281 0 (1,432) 21,849 2.67 Adjustable 15,370 16 (25) 15,361 5.28 Mutual Funds 35,577 0 (1,887) 33,690 0.00 Other Securities 1,757 0 (55) 1,702 * ------------------------------------------------------------------------- TOTAL $135,108 $ 89 $(3,909) $131,288 1.83 ========================================================================= Held for Investment: U.S. Treasury and U.S. Government Agencies $ 47,523 $ 7 $(1,633) $ 45,897 6.06 Mortgage Backed Securities Fixed 43,233 0 (1,495) 41,738 3.83 Adjustable 23,194 0 (1,754) 21,440 10.06 Obligations of States and Political Subdivisions 13,323 208 (234) 13,297 5.03 Other Securities 100 0 0 100 * ------------------------------------------------------------------------- TOTAL $127,373 $215 $(5,116) $122,472 5.89 =========================================================================
* Other Securities excluded from calculated average for total securities - -------------------------------------------------------------------------------- 31 14
- ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands) U.S. Treasury and Mortgage Backed Securities U.S. Government Agencies (Fixed) -------------------------------------------------------------------------------------------------- Amortized Market Weighted Amortized Market Weighted Cost Value Yield Cost Value Yield Maturity at December 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Held for Sale: Within one year $ 7,318 $ 7,295 5.52% $ 2,665 $ 2,719 7.03% One to five years 18,228 18,519 5.87 25,857 25,876 5.81 Five to ten years 8,966 9,306 6.54 7,665 7,745 6.06 Over ten years 41,083 40,876 6.28 No contractual maturity ---------------------------------------------------------------------------------------------- TOTAL VALUE $34,512 $35,120 5.97% $77,270 $77,216 6.13% ============================================================================================== Held for Investment: Within one year One to five years $10,556 $10,868 5.23% $ 37 $ 37 5.38% Five to ten years 1,916 2,000 7.24 9,203 9,185 6.80 Over ten years 4,857 5,130 7.32 10,095 10,247 6.42 --------------------------------------------------------------------------------------------- TOTAL VALUE $17,329 $17,998 6.04% $19,335 $19,469 6.60% ============================================================================================= Maturity at December 31, 1994 Held for Sale $59,123 $58,686 6.70% $23,281 $21,849 5.33% ============================================================================================= Held for Investment $47,523 $45,897 6.36% $43,233 $41,738 6.63% ============================================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- (1) On a fully taxable equivalent basis. - ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands) Mortgage Backed Securities Obligations of States and Political (Adjustable) Subdivisions (1) ------------------------------------------------------------------------------------------------- Amortized Market Weighted Amortized Market Weighted Cost Value Yield Cost Value Yield Maturity at December 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Held for Sale: Within one year One to five years Five to ten years Over ten years $ 10,638 $10,789 6.84% No contractual maturity ---------------------------------------------------------------------------------------------- TOTAL VALUE $ 10,638 $10,789 6.84% $ 0 $ 0 ============================================================================================== Held for Investment: Within one year $ 1,717 $ 1,727 7.29% One to five years 7,195 7,518 8.92 Five to ten years 2,580 2,725 8.88 Over ten years $ 4,502 $ 4,525 6.51% 1,400 1,463 8.75 ---------------------------------------------------------------------------------------------- TOTAL VALUE $ 4,502 $ 4,525 6.51% $12,892 $13,433 8.68% ============================================================================================== Maturity at December 31, 1994 Held for Sale $15,370 $15,361 6.73% $ 0 $ 0 0.00% ============================================================================================== Held for Investment $23,194 $21,440 5.30% $13,323 $13,297 8.66% ============================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- (1) On a fully taxable equivalent basis.
- ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands) Table 14 Mutual Funds Other (1) Total ------------------------------------------------------------------------------------------------------- Amortized Market Weighted Amortized Market Weighted Amortized Market Weighted Cost Value Yield Cost Value Yield Cost Value Cost ------------------------------------------------------------------------------------------------------- Held for Sale: Within one year $ 9,983 $ 10,014 5.92% One to five years 44,085 44,395 5.84% Five to ten years 16,631 17,051 6.32% Over ten years 51,721 51,665 6.39% No contractual maturity $35,577 $34,547 6.12% $1,794 $1,808 5.30% 37,371 36,355 6.08% ------------------------------------------------------------------------------------------------------- TOTAL VALUE $35,577 $34,547 6.12% $1,794 $1,808 5.30% $159,791 $159,480 6.13% ======================================================================================================= Held for Investment: Within one year $ 1,717 $ 1,727 7.29% One to five years 17,888 18,523 6.73% Five to ten years $ 100 $ 100 7.50% 13,699 13,910 7.25% Over ten years 20,854 21,365 6.81% ------------------------------------------------------------------------------------------------------- TOTAL VALUE $ 0 $ 0 $ 100 $ 100 7.50% $ 54,158 $ 55,525 6.91% ======================================================================================================= Maturity at December 31, 1994 Held for Sale $35,577 $33,690 5.54% $1,757 $1,702 6.48% $135,108 $131,288 6.16% ======================================================================================================= Held for Investment $ 0 $ 0 0.00% $ 100 $ 100 7.50% $127,373 $122,472 6.50% =======================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Average Amortized Unrealized Unrealized Market Years to December 31, 1995 Cost Gains Losses Value Maturity - ----------------------------------------------------------------------------------------------------------------------------------- Held for Sale: U.S. Treasury and U.S. Government Agencies $ 34,512 $ 645 $ (37) $ 35,120 3.58 Mortgage Backed Securities: Fixed 77,270 387 (441) 77,216 3.27 Adjustable 10,638 164 (13) 10,789 7.40 Mutual Funds 35,577 0 (1,030) 34,547 0.00 Other Securities 1,794 14 0 1,808 * ---------------------------------------------------------------------------- TOTAL $159,791 $1,210 $(1,521) $159,480 2.91 ============================================================================ Held for Investment: U.S. Treasury and U.S. Government Agencies $ 17,329 $ 669 $ 0 $ 17,998 2.11 Mortgage Backed Securities Fixed 19,335 236 (102) 19,469 3.75 Adjustable 4,502 23 (0) 4,525 7.52 Obligations of States and Political Subdivisions 12,892 544 (3) 13,433 4.35 Other Securities 100 0 0 100 * ---------------------------------------------------------------------------- TOTAL $ 54,158 $1,472 $ (105) $ 55,525 3.67 ============================================================================ (*) Other Securities excluded from calculated average for total securities - ----------------------------------------------------------------------------------------------------------------------------------
DEPOSITS Total deposits increased $101,338,000 or 18.1 percent to $660,967,000 at December 31, 1995, compared to one year earlier. Approximately $62 million of the increase was attributable to the American acquisition. The commercial bank deposits acquired are primarily core deposits with interest rates paid and characteristics very similar to the Company's existing customer accounts. Certificates of deposit under $100,000 increased $57,556,000 or 30.1 percent and certificates of deposit of $100,000 or more increased $14,966,000 or 56.8 percent over the past twelve months, while lower cost savings deposits (including NOW and money market deposits) increased $9,641,000 or 3.6 percent. Noninterest bearing demand deposits grew $19,175,000 or 24.9 percent. Total deposits increased $26,143,000 or 4.9 percent to $559,629,000 at December 31, 1994, compared to one year earlier. The increase was due to growth in certificates of deposit of $22,642,000 or 13.4 percent, an increase in noninterest bearing demand deposits of $15,493,000 or 25.2 percent, and a rise in certificates of deposit of $100,000 or more of $1,903,000 or 7.8 percent. Savings deposits (including NOW and money market deposit accounts) declined $13,895,000 or 5.0 percent. The increase in certificates of deposits in 1995 and 1994 was directly related to higher interest rates offered on certificates, reflecting the general rise in interest rates during 1994, and resulting renewed interest by customers in investing in certificates of deposit. In part, the increase in demand deposits was related to a $5,268,000 and $9,230,000 increase in public deposits at December 31, 1995 and December 31, 1994, respectively, primarily related to tax receipts collected by the local tax collector. Average noninterest bearing demand deposits comprised 11.8 percent of average deposits for the year ended December 31, 1995, slightly higher than the 11.7 percent recorded for the same period one year earlier. The Company remains the largest commercial bank in its primary market. 32 15
- ------------------------------------------------------------------- MATURITY OF CERTIFICATES OF DEPOSIT Table 15 OF $100,000 OR MORE (Dollars in thousands) - ------------------------------------------------------------------- % of % of December 31 1995 Total 1994 Total - ------------------------------------------------------------------- Maturity Group: Under 3 months $15,249 36.9% $ 5,811 22.0% 3 to 6 months 11,867 28.7% 7,481 28.4% 6 to 12 months 8,309 20.1% 3,446 13.1% Over 12 months 5,904 14.3% 9,625 36.5% ------------------------------------------- TOTAL $41,329 100.0% $26,363 100.0% ===========================================
SHORT TERM BORROWINGS At December 31, 1995, $43,907,000 in securities sold under agreements to repurchase were outstanding, a decrease of $732,000 compared to year end 1994. At year end 1995 and 1994, approximately $40 million in funds were maintained by the local tax collector and approximately $3 million in funds were maintained by the local school board. INTEREST RATE SENSITIVITY Interest rate movements and deregulation of interest rates have made managing the Company's interest rate sensitivity increasingly important. The Company's Asset/Liability Management Committee (ALCO) is responsible for managing the Company's exposure to changes in market interest rates. This committee attempts to maintain stable net interest margins by generally matching the volume of assets and liabilities maturing, or subject to repricing, and by adjusting rates to market conditions and changing interest rates. Interest rate exposure is managed by monitoring the relationship between earning assets and interest bearing liabilities, focusing primarily on those that are rate 33 16 sensitive. Rate sensitive assets and liabilities are those that reprice at market interest rates within a relatively short period, defined here as one year or less. The difference between rate sensitive assets and rate sensitive liabilities represents the Company's interest sensitivity gap, which may be either positive (assets exceed liabilities) or negative (liabilities exceed assets.)
- -------------------------------------------------------------------------------------------- INTEREST RATE SENSITIVITY ANALYSIS (1) Table 16 (Dollars in thousands) 0-3 4-12 1-5 Over 5 December 31, 1995 Months Months Years Years Total - -------------------------------------------------------------------------------------------- Federal funds sold $ 58,400 $ 0 $ 0 $ 0 $ 58,400 Securities (2) 53,365 19,418 77,303 63,863 213,949 Loans (3) 107,640 120,926 68,222 113,071 409,859 -------------------------------------------------------------- Earning assets 219,405 140,344 145,525 176,934 682,208 Savings deposits (4) 274,617 0 0 0 274,617 Certificates of deposit 98,996 148,468 42,568 65 290,097 Federal funds purchased and other short term borrowings 43,907 0 0 0 43,907 -------------------------------------------------------------- Interest bearing liabilities 417,520 148,468 42,568 65 608,621 -------------------------------------------------------------- Interest sensitivity gap $(198,115) $ (8,124) $ 102,957 $176,869 $ 73,587 ============================================================== Cumulative gap $(198,115) $(206,239) $(103,282) $ 73,587 ============================================================== Cumulative gap to earning assets (%) (29.0) (30.2) (15.1) 10.8 Earning assets to interest bearing liabilities (%) 52.5 94.5 341.9 N/M - --------------------------------------------------------------------------------------------
(1) The repricing dates may differ from maturity dates for certain assets due to prepayment assumptions. (2) Securities are stated at amortized cost. (3) Excludes nonaccrual loans. (4) This category is comprised of NOW, savings, and money market deposits. If NOW and savings deposits (totalling $117,728,000) were deemed to be repriceable in"4-12 months," the interest sensitivity gap and cumulative gap would be $81,265,000 indicating 11.9% of total earning assets and 73.2% of earning assets to interest bearing liabilities for the "0-3 months" category. N/M Not meaningful. On December 31, 1995, 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 30.2 percent. This means that the Company's assets reprice more slowly than its deposits. In a declining interest rate environment, the cost of the Company's deposits and other liabilities may be expected to fall faster than the interest received on its earnings assets, thus increasing the net interest spread. If interest rates generally increase, the negative gap means that the interest received on earning assets may be expected to increase more slowly than the interest paid on the Company's liabilities, therefore decreasing the net interest spread. It has been the Company's experience that deposit balances for NOW and savings accounts are stable and subjected to limited repricing when interest rates increase or decrease within a range of 200 basis points. Therefore, the Company's ALCO uses model simulation to manage and measure its interest rate sensitivity. The Company has determined that an acceptable level of interest rate risk would be for net interest income to fluctuate no more than 30 percent, given an immediate change in interest rates (up or down) of 200 basis points. At December 31, 1995, net interest income would decline 12.3 percent if interest rates would immediately rise 200 basis points. The Company does not presently use interest rate protection products in managing its interest rate sensitivity. LIQUIDITY MANAGEMENT The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for business expansion. Liquidity management addresses the Company's ability to meet deposit withdrawals either on demand or at contractual maturity and to make new loans and investments as opportunities arise. Contractual maturities for assets and liabilities are reviewed to meet current and future liquidity requirements. Sources of liquidity, both anticipated and unanticipated, are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, investment securities, and federal funds sold. The Company has access to federal funds lines of credit and is able to provide short term financing of its activities by selling, under agreement to repurchase, United 34 17 States Treasury securities and securities of United States Government agencies and corporations not pledged to secure public deposits or trust funds. At December 31, 1995, the Company had available federal funds lines of credit of $37,500,000. At December 31, 1995, the Company had $93,352,000 of United States Treasury and Government agency securities and mortgage backed securities not pledged and available for use under repurchase agreements. At December 31, 1994, the amount of securities available and unpledged was $140,059,000. Liquidity, as measured in the form of cash and cash equivalents, totalled $115,018,000 at December 31, 1995, compared to $87,580,000 at December 31, 1994. Cash and equivalents vary with seasonal deposit movements and are generally higher in the winter than in the summer, and vary with the level of principal repayments occurring in the Company's investment securities portfolio and loan portfolio. As is typical of financial institutions, cash flows from investing (primarily in loans and securities) and from financing (primarily through deposit generation and short term borrowings) are greatly in excess of cash flows from operations. In 1995, the cash flow from operations of $11,050,000 was 33.0 percent higher than during the same period of 1994. Cash flows from investing and financing activities reflect the increase in loan and deposit balances experienced in 1995. In 1994, the cash flow from operations of $8,432,000 was 4.0 percent higher than in 1993. EFFECTS ON INFLATION AND CHANGING PRICES The financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, overtime, due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the general levels of inflation. However, inflation affects financial institutions' increased cost of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and stockholders' equity. Mortgage originations and refinancings tend to slow as interest rates increase, and likely will reduce the Company's earnings from such activities and the income from the sale of residential mortgage loans in the secondary market. FASB 107 DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has calculated and reported the fair value of its financial instruments in accordance with the Statement of Financial Accounting Standards (SFAS) No. 107. While market value information has been reported for its investment securities portfolio in prior years based on quoted market prices, this statement also requires the estimating of fair values for financial instruments with no quoted market prices. For most instruments with no quoted market values, there are a variety of judgments which must be applied with a wide variation in reported results. Management has followed the requirements of the statement and used an acceptable method to estimate fair value for these instruments. However, various other values could result if different assumptions were used. Therefore, management believes it is not relevant and potentially misleading to compare the amount of appreciation or depreciation of financial instruments with no quoted values to any other financial institution. Also, although the statement does not prohibit estimating and reporting the fair value of deposits, management has elected not to estimate a value for its core deposit portfolio because of reliability and comparability issues. 35 18 Selected Quarterly Information
- ---------------------------------------------------------------------------------------------------------------------- Consolidated Quarterly Average Balances, Yields and Rates (1) 1995 Quarters - ---------------------------------------------------------------------------------------------------------------------- Fourth Third Second - ---------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Rate Balance Rate Balance Rate - ---------------------------------------------------------------------------------------------------------------------- ASSETS Earning assets Securities Taxable $206,519 6.20% $228,446 6.30% $231,882 6.44% Nontaxable 13,403 8.42% 13,406 8.38% 13,616 8.43% ------------------------------------------------------------------------- TOTAL SECURITIES 219,922 6.33% 241,852 6.41% 245,498 6.55% Federal funds sold and other short term investments 40,207 5.83% 22,964 5.82% 49,489 6.05% Loans (2) 399,262 8.56% 376,029 8.58% 349,378 8.65% ------------------------------------------------------------------------- TOTAL EARNING ASSETS 659,391 7.65% 640,845 7.66% 644,365 7.65% Allowance for loan losses (4,032) (3,975) (3,933) Cash and due from banks 22,417 24,255 25,022 Bank premises and equipment 16,771 17,216 17,366 Other assets 14,876 14,782 14,379 ------------------------------------------------------------------------- $709,423 $693,123 $697,199 ========================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities NOW (including Super NOW) $77,393 1.49% $119,729 1.49% $122,990 1.61% Savings deposits 61,585 1.89% 62,711 1.93% 64,655 1.96% Money market accounts 126,229 2.40% 78,615 3.04% 79,690 3.12% Time deposits 293,508 5.64% 291,049 5.66% 283,124 5.53% Federal funds purchased and other short term borrowings 6,419 4.20% 2,710 4.39% 5,972 4.63% ------------------------------------------------------------------------- TOTAL INTEREST BEARING LIABILITIES 565,134 3.92% 554,814 3.96% 556,431 3.89% Demand deposits 76,848 72,137 74,219 Other liabilities 4,871 3,644 5,055 ------------------------------------------------------------------------- 646,853 630,595 635,705 Shareholders' equity 62,570 62,528 61,494 ------------------------------------------------------------------------- $709,423 $693,123 $697,199 ========================================================================= Interest expense as % of earning assets 3.36% 3.43% 3.36% Net interest income as % of earning assets 4.29% 4.23% 4.29% - ----------------------------------------------------------------------------------------------------------------------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates are calculated on an annualized basis. (2) Nonaccural loans are included in loan balances. Fees on loans are included in interest on loans. 36 19
- ----------------------------------------------------------------------------------------------------------------------- 1994 Quarters - ----------------------------------------------------------------------------------------------------------------------- First Fourth Third Second First - ----------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Average Yield/ Average Yield/ Average Yield/ Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate - ----------------------------------------------------------------------------------------------------------------------- $240,928 6.33% $245,268 6.07% $258,133 6.02% $267,628 5.99% $276,887 6.08% 13,798 8.26% 13,829 8.42% 14,601 8.47% 14,102 8.59% 13,414 8.65% - ----------------------------------------------------------------------------------------------------------------------- 254,726 6.44% 259,097 6.19% 272,734 6.15% 281,730 6.12% 290,301 6.21% 44,550 5.94% 29,003 5.23% 3,730 4.36% 9,317 4.00% 14,414 3.18% 297,533 8.77% 285,861 8.21% 273,451 8.09% 263,179 7.94% 257,852 8.05% - ----------------------------------------------------------------------------------------------------------------------- 596,809 7.57% 573,961 7.14% 549,915 7.10% 554,226 6.95% 562,567 6.97% (3,432) (3,373) (3,578) (3,618) (3,612) 24,942 26,075 21,411 23,373 24,093 15,707 15,983 16,044 16,186 16,523 8,791 10,852 11,701 12,085 13,191 - ----------------------------------------------------------------------------------------------------------------------- $642,817 $623,498 $595,493 $602,252 $612,762 ======================================================================================================================= $116,662 1.70% $118,361 1.69% $116,577 1.62% $120,724 1.60% $121,757 1.57% 65,036 1.96% 69,570 1.98% 74,096 1.97% 78,882 1.94% 81,266 2.01% 74,363 3.12% 75,208 2.82% 80,488 2.60% 85,852 2.40% 85,468 2.33% 240,630 5.00% 215,034 4.40% 199,810 4.06% 190,622 3.87% 189,992 3.85% 16,328 4.77% 13,337 4.58% 1,812 3.72% 3,262 3.07% 13,468 2.20% - ----------------------------------------------------------------------------------------------------------------------- 513,019 3.58% 491,510 3.17% 472,783 2.88% 479,342 2.71% 491,951 2.68% 65,919 68,627 60,586 62,355 61,284 3,453 3,721 3,822 3,065 3,444 - ----------------------------------------------------------------------------------------------------------------------- 582,391 563,858 537,191 544,762 556,679 60,426 59,640 58,302 57,490 56,083 - ----------------------------------------------------------------------------------------------------------------------- $642,817 $623,498 $595,493 $602,252 $612,762 ======================================================================================================================= 3.08% 2.71% 2.48% 2.34% 2.34% 4.49% 4.43% 4.62% 4.61% 4.63% - -----------------------------------------------------------------------------------------------------------------------
37 20 Selected Quarterly Information
---------------------------------------------------------------------------------------------------------------------------- Quarterly Consolidated Income Statements 1995 Quarters 1994 Quarters ------------------------------------- -------------------------------- (Dollars in thousands except per share data) Fourth Third Second First Fourth Third Second First ----------------------------------------------------------------------------------------------------------------------------- Net interest income: Interest income $12,622 $12,284 $12,203 $11,042 $10,243 $ 9,736 $ 9,506 $ 9,556 Interest expense 5,588 5,537 5,402 4,534 3,922 3,436 3,238 3,245 --------------------------------------------------------------------------- Net interest income 7,034 6,747 6,801 6,508 6,321 6,300 6,268 6,311 Provision for loan losses 125 125 0 0 0 0 95 50 --------------------------------------------------------------------------- Net interest income after provision for losses 6,909 6,622 6,801 6,508 6,321 6,300 6,173 6,261 Noninterest income: Service charges on deposit accounts 667 655 633 499 524 499 482 528 Trust fees 513 525 455 415 445 403 436 438 Other service charges and fees 281 291 259 267 236 257 266 269 Brokerage commissions and fees 475 369 412 299 266 249 293 382 Other 139 123 121 119 126 110 119 147 Securities gains (losses) 218 269 46 (53) (5) (37) 809 (15) --------------------------------------------------------------------------- Total noninterest income 2,293 2,232 1,926 1,546 1,592 1,481 2,405 1,749 Noninterest expenses: Salaries and wages 2,430 2,455 2,442 2,323 2,216 2,097 2,193 2,176 Pension and other employee benefits 509 493 497 452 419 488 451 457 Occupancy 576 604 576 575 572 548 557 553 Furniture and equipment 436 495 485 484 481 503 510 533 Marketing 324 328 351 364 307 262 332 361 Legal and professional fees 192 228 175 147 193 176 321 198 FDIC assessments 102 176 225 225 260 295 318 318 Foreclosed and repossessed asset management and dispositions 46 14 31 (27) (250) 99 84 87 Amortization of intangibles 165 146 86 21 23 22 22 21 Other 1,357 1,198 1,239 1,301 1,159 1,043 1,374 1,226 --------------------------------------------------------------------------- Total noninterest expenses 6,137 6,137 6,107 5,865 5,380 5,533 6,162 5,930 --------------------------------------------------------------------------- Income before income taxes 3,065 2,717 2,620 2,189 2,533 2,248 2,416 2,080 Provision for income taxes 1,172 961 906 726 897 731 790 673 --------------------------------------------------------------------------- Net income $ 1,893 $ 1,756 $ 1,714 $ 1,463 $ 1,636 $ 1,517 $ 1,626 $ 1,407 =========================================================================== PER COMMON SHARE DATA Net income $ 0.44 $ 0.40 $ 0.40 $ 0.34 $ 0.38 $ 0.35 $ 0.38 $ 0.33 =========================================================================== Cash dividends declared: Class A common stock $ 0.15 $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.12 $ 0.12 $ 0.12 Market price Class A common stock: Low close 21 5/8 18 17 3/4 16 1/4 16 3/4 17 1/4 16 3/4 16 1/2 High close 25 1/4 22 1/2 19 1/2 19 1/4 19 1/2 19 3/4 18 1/4 18 1/2 Bid price at end of period 21 3/4 22 18 1/2 18 5/16 16 3/4 19 1/4 17 3/4 17 3/8 -----------------------------------------------------------------------------------------------------------------------------
38 21 Financial Statements -------------------------------------------------------------------------- Management's Report on Responsibilities for Financial Reporting Management is responsible for the preparation and content of the accompa- nying financial statements and the other information contained in this report. Management believes that the financial statements have been prepared in conformity with appropriate, generally accepted accounting principles applied on a consistent basis and present fairly Seacoast Banking Corporation of Florida's consolidated financial condition and results of operations. Where amounts must be based on estimates and judgments, they represent the best estimates of management. Management maintains and relies upon an accounting system and related internal accounting controls to provide reasonable assurance that transactions are properly executed and recorded and that the company's assets are safeguarded. Emphasis is placed on proper segregation of duties and authorities, the development and dissemination of written policies and procedures and a complete program of internal audits and management follow-up. In recognition of cost-benefit relationships and inherent control limitations, some features of the control systems are designed to detect rather than prevent errors, irregularities and departures from approved policies and practices. Management believes the system of controls has prevented or detected on a timely basis any occurrences that could be material to the financial statements and that timely corrective actions have been initiated when appropriate. The accompanying 1995 financial statements have been audited by Arthur Andersen LLP, certified public accountants. As part of their audit, Arthur Andersen LLP evaluated the accounting systems and related internal accounting controls only to the extent they deemed necessary to determine their auditing procedures. Their audit would not necessarily disclose all internal accounting control weaknesses because of the limited purpose of their evaluation. Although the scope of Arthur Andersen LLP's audit did not encompass a complete review of and they have not expressed an opinion on the overall system of internal accounting control, they reported that their evaluation disclosed no conditions which they consider to be material internal accounting control weaknesses. The Board of Directors pursues its oversight role for accounting and internal accounting control matters through an Audit Committee of the Board of Directors comprised entirely of outside Directors. The Audit Committee meets periodically with management, internal auditors and independent accountants. The independent accountants and internal auditors have full and free access to the Audit Committee and meet with it privately, as well as with management present, to discuss internal control accounting and auditing matters. /s/ Dale M. Hudson /s/ William R. Hahl /s/ John R. Turgeon - ----------------------- ------------------------- -------------------- DALE M. HUDSON, WILLIAM R. HAHL, JOHN R. TURGEON, President and Senior Vice President and Controller Chief Executive Officer Chief Financial Officer 39 22 Financial Statements --------------------------------------------------------------------------- Report of Independent Certified Public Accountants Board of Directors and Shareholders Seacoast Banking Corporation of Florida Stuart, Florida We have audited the accompanying consolidated balance sheets of Seacoast Banking Corporation of Florida and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Seacoast Banking Corporation of Florida and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Notes J and A to the consolidated financial statements, effective January 1, 1993 and December 31, 1993, respectively, the Company changed its methods of accounting for income taxes and for certain investment securities. Arthur Andersen LLP Miami, Florida, January 16, 1996. 40 23 Consolidated Statements of Income
-------------------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries (In thousands of dollars except per share data) Year Ended December 31 1995 1994 1993 -------------------------------------------------------------------------------------------- Interest on securities Taxable $ 14,337 $ 15,818 $ 17,695 Nontaxable 780 812 797 Interest and fees on loans 30,707 21,782 20,964 Interest on federal funds sold 2,327 629 234 ------------------------------------------- TOTAL INTEREST INCOME 48,151 39,041 39,690 Interest on deposits 5,507 5,500 5,576 Interest on time certificates 15,195 8,072 7,920 Interest on borrowed money 359 269 135 ------------------------------------------- TOTAL INTEREST EXPENSE 21,061 13,841 13,631 ------------------------------------------- NET INTEREST INCOME 27,090 25,200 26,059 Provision for loan losses 250 145 150 NET INTEREST INCOME AFTER ------------------------------------------- PROVISION FOR LOAN LOSSES 26,840 25,055 25,909 ------------------------------------------- Noninterest income Securities gains 480 752 1,204 Other 7,517 6,475 7,588 Noninterest expenses 24,246 23,005 24,345 ------------------------------------------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 10,591 9,277 10,356 Provision for income taxes 3,765 3,091 3,488 ------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 6,826 6,186 6,868 Cumulative effect on prior years of a change in accounting for income taxes 0 0 264 ------------------------------------------- NET INCOME $ 6,826 $ 6,186 $ 7,132 =========================================== -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- Per share common stock Income before cumulative effect of a change in accounting principle $ 1.58 $ 1.44 $ 1.60 Cumulative effect on prior years of a change in accounting for income taxes 0.00 0.00 0.06 ------------------------------------------- NET INCOME $ 1.58 $ 1.44 $ 1.66 =========================================== Average shares outstanding 4,309,590 4,305,592 4,291,949 --------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 41 24 Consolidated Balance Sheets
----------------------------------------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries (In thousands of dollars) December 31 1995 1994 ------------------------------------------------------------------------------------------------------------------ ASSETS Cash and due from banks $ 56,618 $ 25,230 Federal funds sold 58,400 62,350 Securities: Securities held for sale (at market) 159,480 131,288 Securities held for investment (market values: 1995 - $55,525 and 1994 - $122,472) 54,158 127,373 ----------------------- TOTAL SECURITIES 213,638 258,661 Loans 414,964 292,790 Less: Allowance for loan losses 4,066 3,373 ----------------------- NET LOANS 410,898 289,417 Bank premises and equipment 16,104 15,751 Other real estate owned 889 165 Core deposit and other intangibles 2,475 480 Goodwill 4,409 0 Other assets 7,917 10,657 ----------------------- TOTAL ASSETS $771,348 $662,711 ======================= ------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 42 25
- -------------------------------------------------------------------------------------------------------------------------------- (In thousands of dollars) December 31 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits Demand deposits (noninterest bearing) $ 96,253 $ 77,078 Savings deposits 274,617 264,976 Other time deposits 248,768 191,212 Time certificates of $100,000 or more 41,329 26,363 ----------------------------- TOTAL DEPOSITS 660,967 559,629 Federal funds purchased and securities sold under agreement to repurchase, maturing within 30 days 43,907 44,639 Other liabilities 4,274 2,859 ----------------------------- 709,148 607,127 Commitments and Contingent Liabilities (Notes I, K and P) SHAREHOLDERS' EQUITY Preferred stock, par value $1.00 per share - authorized 1,000,000 shares, none issued or outstanding 0 0 Class A common stock, par value $.10 per share (liquidation preference of $2.50 per share) - authorized 10,000,000 shares, issued 3,770,819 and outstanding 3,700,013 shares in 1995 and issued and outstanding 3,718,724 in 1994 377 372 Class B common stock, par value $.10 per share - authorized 810,000 shares, issued and outstanding 517,211 shares in 1995 and 563,354 shares in 1994 52 56 Additional paid-in capital 18,612 18,498 Retained earnings 45,540) 41,049 Less: Treasury Stock (70,806 shares), at cost (1,676) 0 ----------------------------- 62,905 59,975 Securities valuation allowance (705) (4,391) ----------------------------- TOTAL SHAREHOLDERS' EQUITY 62,200 55,584 ----------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $771,348 $662,711 ============================= - ---------------------------------------------------------------------------------------------------------------------------------
43 26 Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries (In thousands of dollars) Year Ended December 31 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities Interest received $ 49,180 $39,869 $40,826 Fees and commissions received 7,515 6,431 7,311 Interest paid (20,815) (13,723) (14,050) Cash paid to suppliers and employees (21,598) (21,037) (21,887) Income taxes paid (3,232) (3,108) (4,093) ---------------------------------------- Net cash provided by operating activities 11,050 8,432 8,107 Cash flows from investing activities Maturities of securities held for sale 36,827 20,200 400 Maturities of securities held for investment 25,759 12,797 45,024 Proceeds from sale of securities held for sale 115,107 72,521 16,110 Proceeds from sale of securities held for investment 0 0 26,201 Purchase of securities held for sale (109,132) (83,358) (10,755) Purchase of securities held for investment (5,112) (11,292) (60,030) Proceeds from sale of loans 0 24,699 12,202 Net new loans and principal repayments (77,011) (44,643) (35,497) Proceeds from the sale of other real estate owned 239 4,143 2,580 Deletions (additions) to bank premises and equipment 43 (1,030) (1,548) Purchase of American Bank Captial Corporation of Florida, net of cash (4,659) 0 0 Net change in other assets (87) (299) 97 ---------------------------------------- Net cash used in investing activities (18,026) (6,262) (5,216) Cash flows from financing activities Net increase (decrease) in deposits 39,042 26,146 (17,686) Net increase (decrease) in federal funds purchased and repurchase agreements (732) 4,106 32,115 Issuance of common stock-Employee Stock Purchase and Profit Sharing Plans 115 181 360 Exercise of stock options (58) 88 0 Treasury stock acquired (1,676) 0 0 Dividends paid (2,277) (2,070) (1,893) ---------------------------------------- Net cash provided by financing activities 34,414 28,451 12,896 ---------------------------------------- Net increase in cash and cash equivalents 27,438 30,621 15,787 Cash and cash equivalents at beginning of year 87,580 56,959 41,172 ---------------------------------------- Cash and cash equivalents at end of year $115,018 $87,580 $56,959 ======================================== - --------------------------------------------------------------------------------------------------------------------------
See Note Q for supplemental disclosures. See notes to consolidated financial statements. 44 27 Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
Common Stock ------------------------------------------------- Class A Class B Additional ------------------------------------------------- Paid-in Retained (In thousands of dollars) Shares Amount Shares Amount Capital Earnings - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 3,656,661 $366 587,873 $59 $17,872 $31,694 Exchange of Class B common stock for Class A common stock 16,548 2 (16,548) (2) Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plans 19,205 1 359 Net income 7,132 Cash dividends declared (1,893) Net change in securities valuation equity (allowance) ----------------------------------------------------------------------------- Balance at December 31, 1993 3,692,414 369 571,325 57 18,231 36,933 Exchange of Class B common stock for Class A common stock 7,971 1 (7,971) (1) Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plans 10,339 1 180 Exercise of stock options 8,000 1 87 Net income 6,186 Cash dividends declared (2,070) Net change in securities valuation equity (allowance) ----------------------------------------------------------------------------- Balance at December 31, 1994 3,718,724 372 563,354 56 18,498 41,049 Exchange of Class B common stock for Class A common stock 46,143 4 (46,143) (4) Issuance of Class A Common stock for Employee Stock Purchase and Profit Sharing Plans 5,952 1 114 Treasury stock acquired (71,500) Treasury stock issued for Employee Stock Purchase and Profit Sharing Plans 694 Exercise of stock options (58) Net income 6,826 Cash dividends declared (2,277) Net change in securities valuation equity (allowance) ----------------------------------------------------------------------------- Balance at December 31, 1995 3,700,013 $377 517,211 $52 $18,612 $45,540 ============================================================================= - -----------------------------------------------------------------------------------------------------------------------------------
Securities Valuation Treasury Equity (In thousands of dollars) Stock (Allowance) Total - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 $ 0 $ (284) $49,707 Exchange of Class B common stock for Class A common stock Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plans 360 Net income 7,132 Cash dividends declared (1,893) Net change in securities valuation equity (allowance) 4,951 4,951 ----------------------------------------------------------------------------- Balance at December 31, 1993 0 4,667 60,257 Exchange of Class B common stock for Class A common stock Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plans 181 Exercise of stock options 88 Net income 6,186 Cash dividends declared (2,070) Net change in securities valuation equity (allowance) (9,058) (9,058) ----------------------------------------------------------------------------- Balance at December 31, 1994 0 (4,391) 55,584 Exchange of Class B common stock for Class A common stock Issuance of Class A Common stock for Employee Stock Purchase and Profit Sharing Plans 115 Treasury stock acquired (1,692) (1,692) Treasury stock issued for Employee Stock Purchase and Profit Sharing Plans 16 16 Exercise of stock options (58) Net income 6,826 Cash dividends declared (2,277) Net change in securities valuation equity (allowance) 3,686 3,686 ----------------------------------------------------------------------------- Balance at December 31, 1995 $(1,676) $ (705) $62,200 ============================================================================= - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 45 28 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries NOTE A - SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Nature of Operations: The company is one bank holding company whose operations and locations are more fully described under the heading "Banking on Florida's Treasure Coast" on the inside of the front cover and on page 1 of this annual report. Use of Estimates: The preparation of these financial statements required the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Securities: Effective December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities that may be sold as part of the Company's asset/liability management or in response to, or in anticipation of changes in interest rates and resulting prepayment risk, or for other factors are stated at market value. Such securities are held for sale with unrealized gains or losses reflected as a component of Shareholders' Equity, net of tax. Debt securities that the Company has the ability and intent to hold to maturity are carried at amortized cost. Interest income on securities, including amortization of premiums and accretion of discounts is recognized using the interest method. The Company generally anticipates prepayments of principal in the calculation of the effective yield for collateralized mortgage obligations and mortgage- backed securities. The adjusted cost of each specific security sold is used to compute gains or losses on the sale of securities. Other Real Estate Owned: Other real estate owned consists of real estate acquired in lieu of unpaid loan balances. These assets are carried at an amount equal to the loan balance prior to foreclosure plus costs incurred for improvements to the property, but no more than the estimated fair value of the property. Bank Premises and Equipment: Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight line method, over the estimated useful lives as follows: building - 25-40 years, furniture and equipment - 4-12 years. Purchase Method of Accounting: Net assets of companies acquired in purchase transactions are recorded at fair value at date of acquisition. Core deposit intangibles are amortized on a straight line basis over estimated periods benefited, not exceeding 10 years. Goodwill is amortized on a straight line basis over 15 years. Revenue Recognition: Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest income is discontinued when a loan becomes 90 days past due as to principal or interest. When interest accruals are discontinued, interest credited to income in the current year is reversed and interest accrued in the prior year is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest. Provision for Loan Losses: The provision for loan losses is management's judgement of the amount necessary to increase the allowance for loan losses to a level sufficient to cover losses in the collection of loans. Net Income Per Share: Net income per share is based upon the weighted average number of shares of both Class A and Class B common stock and equivalents outstanding during the respective years. Cash Flow Information: For the purposes of the consolidated statements of cash flows, the Company considers cash and due from banks and federal funds sold as cash and cash equivalents. NOTE B - CASH, DIVIDEND AND LOAN RESTRICTIONS In the normal course of business, the Company and its subsidiary bank enter into agreements, or are subject to regulatory agreements, that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows: The Company's subsidiary bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1995 was approximately $6,500,000. Under Federal Reserve regulation, the Company's subsidiary bank is limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specified obligations. At December 31, 1995, the maximum amount available for transfer from the subsidiary bank to the Company in the form of loans approximated 18 percent of consolidated net assets. The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this restriction the Company's subsidiary bank can distribute as dividends to the Company in 1996, without prior approval of the Comptroller of the Currency, approximately $9,500,000. 46 29 NOTE C - SECURITIES The amortized cost and market value of securities follow:
Gross Gross Amortized Unrealized Unrealized Market (In thousands of dollars) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------- December 31, 1995 Securities Held for Sale: U.S. Treasury and U.S. Government agencies $ 34,512 $ 645 $ (37) $ 35,120 Mortgage backed securities 87,908 551 (454) 88,005 Mutual funds 35,577 0 (1,030) 34,547 Other securities 1,794 14 0) 1,808 ------------------------------------------------------- $159,791 $1,210 $ (1,521) $159,480 ======================================================= Securities Held for Investment: U.S. Treasury and U.S.Government agencies $ 17,329 $ 669 $ 0 $ 17,998 Mortgage backed securities 23,837 259 (102) 23,994 Tax exempt 12,892 544 (3) 13,433 Other securities 100 0 0) 100 ------------------------------------------------------- $ 54,158 $1,472 $ (105) $ 55,525 ======================================================= December 31, 1994 Securities Held for Sale: U.S. Treasury and U.S.Government agencies $ 59,123 $ 73 $ (510) $ 58,686 Mortgage backed securities 38,651 16 (1,457) 37,210 Mutual funds 35,577 0 (1,887) 33,690 Other securities 1,757 0 (55) 1,702 ------------------------------------------------------- $135,108 $ 89 $ (3,909) $131,288 ======================================================= Securities Held for Investment: U.S. Treasury and U.S.Government agencies $ 47,523 $ 7 $ (1,633) $ 45,897 Mortgage backed securities 66,427 0 (3,249) 63,178 Tax exempt 13,323 208 (234) 13,297 Other securities 100 0 0) 100 ------------------------------------------------------- $127,373 $ 215 $ (5,116) $122,472 ======================================================= - -----------------------------------------------------------------------------------------------------
The amortized cost and market value of securities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
Held for Investment Held for Sale ------------------------------------------ Amortized Market Amortized Market (IN THOUSANDS OF DOLLARS) Cost Value Cost Value - ----------------------------------------------------------------------------------- DUE IN ONE YEAR OR LESS $1,717 $1,727 $7,318 $7,295 DUE AFTER ONE YEAR THROUGH FIVE YEARS 17,851 18,486 18,228 18,519 DUE AFTER FIVE YEARS THROUGH TEN YEARS 4,496 4,724 8,966 9,306 DUE AFTER TEN YEARS 6,257 6,594 0 0 ---------------------------------------- 30,321 31,531 34,512 35,120 MORTGAGE BACKED SECURITIES 23,837 23,994 87,908 88,005 NO CONTRACTUAL MATURITY 0 0 37,371 36,355 ---------------------------------------- $54,158 $55,525 $159,791 $159,480 ======================================== - -----------------------------------------------------------------------------------
Proceeds from sales of securities during 1995 were $115,107,000 with gross gains of $778,000 and gross losses of $298,000. During 1994, proceeds from sales of securities were $72,521,000 with gross gains of $1,178,000 and gross losses of $426,000. During 1993, proceeds from sales of securities were $42,311,000 with gross gains of $1,362,000 and gross losses of $158,000. Securities with a carrying value of $70,939,000 at December 31, 1995, were pledged to secure United States Treasury deposits, other public deposits and trust deposits. NOTE D - LOANS An analysis of loans follows:
December 31 (In thousands of dollars) 1995 1994 - --------------------------------------------------------- Real estate construction $ 10,540 $ 8,728 Real estate mortgage 335,031 229,713 Commercial and financial 17,205 11,296 Installment loans to individuals 51,959 42,912 Other 229 141 ------------------ $414,964 $292,790 ================== - ---------------------------------------------------------
One of the sources of the Company's business is loans to directors, officers and other members of management. These loans are made on the same terms as all other loans and do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was approximately $3,786,000 and $3,047,000 at December 31, 1995 and 1994, respectively. During 1995, $1,685,000 of new loans were made and repayments totalled $946,000. See page 26 of Management's Discussion and Analysis for information about concentrations of credit risk of all financial instruments. NOTE E - IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES The Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - - Income Recognition and Disclosures," as of January 1, 1995. These statements require that certain impaired loans be measured based on the present value of expected future cash flows discounted at the loan's original effective interest rate. As a practical expedient, impairment may be measured based on the loan's observable market price or the fair value of collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. The Company had previously measured the allowance for loan losses using methods similar to those described in Statement of Financial Accounting Standard No. 114. As a result of adopting these statements, no additional allowance for loan losses was required as of January 1, 1995. The Company's recorded investment in impaired loans and the related valuation allowance are as follows:
RECORDED VALUATION DECEMBER 31, 1995 (IN THOUSANDS OF DOLLARS) INVESTMENT ALLOWANCE - -------------------------------------------------------------------------- IMPAIRED LOANS: VALUATION ALLOWANCE REQUIRED $ 585 $ 14 NO VALUATION ALLOWANCE REQUIRED 681 0 -------------------- $1,266 $ 14 -------------------- - --------------------------------------------------------------------------
47 30 The valuation allowance is included in the allowance for loan losses. The average recorded investment in impaired loans for the year ended December 31, 1995 was $204,000. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. The Company recognized interest income on impaired loans of $22,000 for the year ended December 31, 1995. Transactions in the allowance for loan losses are summarized as follows:
Year Ended December 31 (In thousands of dollars) 1995 1994 1993 - ---------------------------------------------------------------------------------------------- Balance, beginning of year $3,373 $3,622 $4,091 Provision charged to operating expense 250 145 150 Allowance applicable to loans of purchased company 556 0 0 Charge offs (533) (819) (956) Recoveries 420 425 337 -------------------------------- Balance, end of year $4,066 $3,373 $3,622 ================================ - ----------------------------------------------------------------------------------------------
NOTE F - BANK PREMISES AND EQUIPMENT Bank premises and equipment are summarized as follows:
Accumulated Net Depreciation & Carrying (In thousands of dollars) Cost Amortization Value - ---------------------------------------------------------------------------------------------------- December 31, 1995 Premises (including land of $2,769) $17,428 $ 4,727 $12,701 Furniture and equipment 11,733 8,330 3,403 ----------------------------------------------- $29,161 $13,057 $16,104 =============================================== December 31, 1994 Premises (including land of $3,084) $16,303 $ 4,208 $12,095 Furniture and equipment 10,987 7,331 3,656 ----------------------------------------------- $27,290 $11,539 $15,751 =============================================== - ----------------------------------------------------------------------------------------------------
NOTE G - SHORT TERM BORROWINGS All of the Company's borrowings were comprised of federal funds purchased and securities sold under agreements to repurchase with maturities primarily from overnight to seven days.
(In thousands of dollars) 1995 1994 1993 - ---------------------------------------------------------------------------------------------- Maximum amount outstanding at any month end $ 43,907 $ 44,639 $ 40,533 Average interest rate outstanding at end of year 3.91% 4.56% 2.06% Average amount outstanding $ 7,816 $ 7,949 $ 5,643 Weighted average interest rate 4.59% 3.38% 2.39% - ----------------------------------------------------------------------------------------------
The Company's subsidiary bank has unused lines of credit to purchase federal funds from its correspondent banks of $37,500,000 at December 31, 1995. NOTE H - EMPLOYEE BENEFITS During the plan year ended October 31, 1992, a resolution was adopted to freeze benefit accruals of the Company's defined benefit pension plan as of October 31, 1992, and to terminate the plan. A curtailment gain was calculated upon freezing the benefits which was not recognized in income as the Company intends to amend the plan's benefit formula to allocate all plan assets after plan expenses to the participants. The following table sets forth the plan's funded status and amounts recognized in the Company's financial statements at December 31:
(In thousands of dollars) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $3,034 in 1995, $2,611 in 1994 and $2,968 in 1993 $ (3,168) $ (2,760) $ (3,373) ================================================= Projected benefit obligation for service rendered to date of curtailment $ (3,168) $ (2,760) $ (3,373) Plan assets at fair value, primarily listed stocks and U.S. government bonds 4,089 3,885 4,163 ------------------------------------------------- Projected benefit obligation less than plan assets 921 1,125 790 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 308 77 394 Unrecognized net assets at January 1, 1987, being recognized over 15 years (622) (725) (828) ------------------------------------------------- Prepaid pension cost included in other assets $ 607 $ 477 $ 356 ================================================= Net pension cost: Service cost $ 0 $ 0 $ 0 Interest cost on projected benefit obligation 233 252 233 Actual return on plan assets (348) (373) (403) Net amortization and deferral (14) 0 (93) ------------------------------------------------- Net periodic pension income $ (129) $ (121) $ (263) ================================================= Assumptions used in determining the projected benefit obligation were: Weighted average discount rates 7.0% 8.5% 7.5% Expected long-term rate of return on assets 8.0% 9.0% 9.0%
The Company's profit sharing plan which covers substantially all employees after one year of service includes a matching benefit feature for employees electing to defer the elective portion of their profit sharing compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The profit sharing contributions charged to operations were $572,000 in 1995, $539,000 in 1994 and $722,000 in 1993. 48 31 The Company's stock option and stock appreciation rights plan was approved by the Company's shareholders on April 25, 1991. The number of shares of Class A common stock that may be purchased pursuant to the 1991 plan shall not exceed 300,000 shares. The exercise price at the dates options are granted approximated the fair market value of the Class A common stock on those dates. The following table presents a summary of stock option activity for 1994 and 1995:
Number Option Price of Shares Per Share ----------------------------------------------- Options outstanding, January 1, 1994 212,500 $11.00 - 19.00 Exercised (8,000) 11.00 Granted 8,000 19.75 Cancelled (7,000) 17.75 - 19.00 ------------------------ Options outstanding, December 31, 1994 205,500 11.00 - 19.75 Exercised (8,000) 11.00 Granted 60,000 17.50 Cancelled (8,000) 19.75 ------------------------ Options outstanding, December 31, 1995 249,500 11.00 - 19.00 ======================== Options exercisable, December 31, 1994 38,000 December 31, 1995 96,000 -----------------------------------------------
NOTE I - LEASE COMMITMENTS The Company is obligated under various noncancelable operating leases for equipment, buildings and land. At December 31, 1995, future minimum lease payments under leases with initial or remaining terms in excess of one year are as follows:
(In thousands of dollars) --------------------------------- 1996 $ 1,109 1997 858 1998 668 1999 569 2000 407 Thereafter 6,758 -------- $ 10,369 ======== ---------------------------------
Rent expense charged to operations was $995,000 in 1995, $1,033,000 in 1994 and $995,000 in 1993. Certain leases contain provisions for renewal and change with the consumer price index. Certain property is leased from related parties of the Company at prevailing rental rates. Lease payments to these individuals were $185,000 in 1995, $259,000 in 1994 and $202,000 in 1993. NOTE J - INCOME TAXES The provision for income taxes including tax effects of security transaction gains (1995 - $175,000; 1994 - $267,000; 1993 - $436,000) are as follows:
Year Ended December 31 (In thousands of dollars) 1995 1994 1993 ------------------------------------------------------------------------- Current Federal $3,311 $2,313 $3,398 State 403 150 368 Deferred Federal 46 554 (251) State 5 74 (27) ------------------------ $3,765 $3,091 $3,488 ======================== -------------------------------------------------------------------------
Temporary differences in the recognition of revenue and expense for tax and financial reporting purposes resulted in deferred income taxes as follows:
(In thousands of dollars) 1995 1994 1993 ------------------------------------------------- Depreciation $(135) $(260) $(39) Allowance for loan losses 2 152 (126) Interest and fee income 63 (126) 15 Other real estate owned (4) 736 (245) Tax accounting change 26 113 112 Other 99 13 5 ------------------- $51 $628 $(278) =================== ------------------------------------------------
The difference between the total expected tax expense (computed by applying the U.S. Federal tax rate of 34 percent to pretax income) and the reported income tax expense relating to income before income taxes is as follows: Year Ended December 31 (In thousands of dollars) 1995 1994 1993 - ------------------------------------------------------------------------------------- 34% of income before income taxes $3,601) $3,154 $3,521 Increase (decrease) resulting from the effects of: Tax-exempt interest on obligations of states and political subdivisions (234) (253) (250) State income taxes (139) (76) (116) Dividend exclusion (7) (8) (10) Amortization of intangibles 108 0 0 Other 28 50 2 ------------------------ Federal tax provision 3,357 2,867 3,147 State tax provision 408 224 341 ------------------------ Applicable income taxes $3,765 $3,091 $3,488 ======================== - -------------------------------------------------------------------------------------
49 32 In January 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the deferred method (APB 11) to an asset and liability approach. Previously, the Company deferred the effects of timing differences between financial reporting and taxable income at then current tax rates. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The net deferred tax assets are comprised of the following: December 31 (In thousands of dollars) 1995 1994 ------------------------------------------------------- Allowance for loan losses $ 1,210 $ 1,212 Other real estate owned 15 11 Tax accounting change 0 26 Net unrealized securities losses 402 2,412 Other 0 30 ---------------- Gross deferred tax assets 1,627 3,691 Depreciation (887) (1,022) Interest and fee income (332) (269) Other (68) (0) ---------------- Gross deferred tax liabilities (1,287) (1,291) Deferred tax asset valuation allowance 0 0 ---------------- Net deferred tax assets $ 340 $ 2,400 ================ -------------------------------------------------------
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: Cash and cash equivalants The carrying amount was used as a reasonable estimate of fair value. Securities The fair value of U.S. Treasury and U.S. Government agency, mutual fund and mortgage backed securities are estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of many state and municipal securities are not readily available through market sources, so fair value estimates are based on quoted market price or prices of similar instruments. Loans Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, mortgage, credit card, etc. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories. The fair value of loans, except residential mortgage and credit card loans, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. For residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. For credit card loans, cash flows and maturities are based on contractual terms. The fair value estimate for credit card loans is based on the carrying value of existing loans at December 31, 1995 and 1994. This estimate does not include the value that relates to estimated cash flows from new loans generated from existing cardholders over the remaining life of the portfolio. Deposit Liabilities The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Commitments to Extend Credit and Standby Letters of Credit The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the present creditworthiness of the counterparties. 1995 1994 ------------------------------------------------------------------------------ December 31 Carrying Fair Carrying Fair (In thousands of dollars) Amount Value Amount Value ------------------------------------------------------------------------------ Financial Assets Cash and Cash Equivalents $115,018 $115,018 $ 87,580 $ 87,580 Securities 213,638 215,005 258,661 253,760 Loans, net 410,898 415,647 289,417 282,855 Financial Liabilities Deposits 660,967 662,141 559,629 558,356 Borrowings 43,907 43,907 44,639 44,639 Contingent Liabilities Commitments to Extend Credit 0 335 0 294 Standby Letters of Credit 0 11 0 21 ------------------------------------------------------------------------------
50 33 NOTE L - NONINTEREST INCOME AND EXPENSES Details of noninterest income and expenses follow: Year Ended December 31 (In thousands of dollars) 1995 1994 1993 - ----------------------------------------------------------------------------------- Noninterest income Service charges on deposit accounts $ 2,454 $ 2,033 $ 2,208 Trust fees 1,908 1,722 1,785 Other service charges and fees 1,098 1,028 1,105 Brokerage commissions and fees 1,555 1,190 1,753 Other 502 502 737 ------------------------- 7,517 6,475 7,588 Securities gains 480 752 1,204 ------------------------- $ 7,997 $ 7,227 $ 8,792 ========================= Noninterest expenses Salaries and wages $ 9,650 $ 8,682 $ 9,188 Pension and other employee benefits 1,951 1,815 1,850 Occupancy 2,331 2,230 2,251 Furniture and equipment 1,900 2,027 2,231 Marketing 1,367 1,262 996 Legal and professional fees 742 888 860 FDIC assessments 728 1,191 1,297 Foreclosed and repossessed asset management and dispositions 64 20 1,119 Amortization of intangibles 418 88 84 Other 5,095 4,802 4,469 ------------------------- $24,246 $23,005 $24,345 ========================= - -----------------------------------------------------------------------------------
NOTE M - SHAREHOLDERS' EQUITY The Company has reserved 100,000 Class A common shares for issuance in connection with an employee stock purchase plan and 150,000 Class A common shares for issuance in connection with an employee profit sharing plan. At December 31, 1995, an aggregate of 35,236 shares and 52,422 shares, respectively, have been issued as a result of employee participation in these plans. Holders of Class A common stock are entitled to one vote per share on all matters presented to shareholders. Holders of Class B common stock are entitled to 10 votes per share on all matters presented to shareholders. Class A and Class B common stock vote together as a single class on all matters, except as required by law or as provided otherwise in the Company's Articles of Incorporation. Each share of Class B common stock is convertible into one share of Class A common stock at any time prior to a vote of shareholders authorizing a liquidation or dissolution of the Company. NOTE N - ACQUISITION On April 14, 1995, the Company acquired American Bank Capital Corporation of Florida and its subsidiary, American Bank of Martin County. The transaction was treated as a purchase with the Company paying $9.3 million. The following represents the unaudited pro forma impact as of and for the year ended December 31, 1994, assuming the acquisition occurred January 1, 1994:
December 31, 1994 (In thousands of dollars) - ------------------------------------------------------------------------------------ Total assets $726,244 Total loans 340,022 Total deposits 621,524 Shareholders' equity 55,584 Intangible assets 7,662 Tangible Tier 1 capital to adjusted assets 7.46
(In thousands of dollars For the year ended December 31, 1994 except per share amounts) - ------------------------------------------------------------------------------------ Net interest income $27,328 Noninterest income 7,771 Noninterest expense 24,330 Net income 6,910 Net income per share 1.60 - -----------------------------------------------------------------------------------
NOTE O - SEACOAST BANKING CORPORATION OF FLORIDA (PARENT COMPANY ONLY) FINANCIAL INFORMATION BALANCE SHEETS December 31 (In thousands of dollars) 1995 1994 - ----------------------------------------------------------------------------------- ASSETS Cash $ 10 $ 10 Securities purchased under agreement to resell with subsidiary bank, maturing within 30 days 3,772 4,985 Securities held for sale 1,596 1,449 Investment in subsidiaries 56,875 49,079 Other assets 32 157 ---------------------- $62,285 $55,680 ====================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Other liabilities $85 $96 Shareholders' Equity 62,200 55,584 ---------------------- $62,285 $55,680 ====================== - -----------------------------------------------------------------------------------
51 34
STATEMENTS OF INCOME Year Ended December 31 (In thousands of dollars) 1995 1994 1993 - --------------------------------------------------------------------------------------------- INCOME Dividends Subsidiary $2,668 $2,378 $2,027 Other 30 33 42 Interest 292 235 166 ------------------------ 2,990 2,646 2,235 EXPENSES 408 553 363 ------------------------ Income before income tax credit and equity in undistributed income of subsidiaries 2,582 2,093 1,872 Income tax credit (38) (109) (67) ------------------------ Income before equity in undistributed income of subsidiaries 2,620 2,202 1,939 Equity in undistributed income of subsidiaries 4,206 3,984 5,193 ------------------------ NET INCOME $6,826 $6,186 $7,132 ======================== - ------------------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS Year Ended December 31 (In thousands of dollars) 1995 1994 1993 - -------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES Interest received $ 292 $ 235 $ 166 Dividends received 2,701 2,414 2,073 Income taxes received 109 67 60 Cash paid to suppliers (419) (563) (383) ------------------------- Net cash provided by operating activities 2,683 2,153 1,916 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturity of securities 0 0 300 Decrease (increase) in securities purchased under agreement to resell, maturing in 30 days 1,213 (352) (683) ------------------------- Net cash provided by (used in) investing activities 1,213 (352) (383) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock - Employee Stock Purchase and Profit Sharing Plans 115 181 360 Exercise of Stock Options (58) 88 0 Treasury Stock purchased (1,676) 0 0 Dividends paid (2,277) (2,070) (1,893) ------------------------- Net cash used in financing activities (3,896) (1,801) (1,533) ------------------------- Net change in cash 0 0 0 Cash at beginning of year 10 10 10 ------------------------- Cash at end of year $ 10 $ 10 $ 10 =========================
Year Ended December 31 (In thousands of dollars) 1995 1994 1993 - -------------------------------------------------------------------------------------------- RECONCILIATION OF NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES Net income $6,826 $6,186 $7,132 Adjustments to reconcile net income to net cash provided by operating activities: Amortization 4 4 4 Equity in undistributed income of subsidiaries (4,206) (3,984) (5,193) Change in other assets 70 (41) (3) Change in other liabilities (11) (12) (24) ------------------------ Net cash provided by operating activities $2,683 $2,153 $1,916 ======================== - --------------------------------------------------------------------------------------------
NOTE P - CONTINGENT LIABILITIES AND COMMITMENTS WITH OFF BALANCE SHEET RISK The Company and its subsidiary bank, because of the nature of their business, are at all times subject to numerous legal actions, threatened or filed. Management, based upon advice of legal counsel, does not expect that the final outcome of threatened or filed suits will have a materially adverse effect on its results of operations or financial condition. The Company's subsidiary bank is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. The subsidiary bank's exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The subsidiary bank uses the same credit policies in making commitments and standby letters of credit as it does for on balance sheet instruments.
Contract or Notional Amount December 31 (In thousands of dollars) 1995 1994 ------------------------------------------------------------ Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $33,502 $29,431 Standby letters of credit and financial guarantees written: Secured 898 1,958 Unsecured 168 146 ------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses 52 35 and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, equipment, and commercial and residential real estate. Of the $33,502,000 outstanding at December 31, 1995, $24,715,000 is secured by 1-4 family residential properties. Standby letters of credit are conditional commitments issued by the subsidiary bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The subsidiary bank holds collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for the above secured standby letters of credit at December 31, 1995 and 1994 amounted to $1,228,000 and $3,476,000, respectively. NOTE Q - SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars) Year Ended December 31 1995 1994 1993 - ----------------------------------------------------------------------------------------- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net Income $ 6,826 $ 6,186 $ 7,132 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 2,594 2,717 2,994 Provision for loan losses 250 145 150 Provision (credit) for deferred taxes 51 628 (278) Cumulative effect on prior years of a change in accounting principle 0 0 (264) Gain on sale of securities (480) (752) (1,204) Gain on sale of loans 0 (45) (277) (Gain) loss on sale and write down of foreclosed assets (18) (192) 1,003 Loss on disposition of equipment 53 96 151 Change in interest receivable 615 21 83 Change in interest payable 247 118 (419) Change in prepaid expenses 0 112 (147) Change in accrued taxes 497 (686) (320) Change in other liabilities 415 84 (497) ------------------------------- Total adjustments 4,224 2,246 975 ------------------------------- Net cash provided by operating activities $11,050 $ 8,432 $ 8,107 =============================== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: Market value adjustment to securities $ 3,509 $(11,132) $ 7,596 Transfer from securities held for sale to securities held for investment 16,147 64,885 0 Transfer from securities held for investments to securities held for sale 68,764 0 0 Transfers from loans to other real estate owned 945 0 1,603 Transfer from loans to loans held for sale 0 0 13,578 - -----------------------------------------------------------------------------------------
NOTE R - REASSESSMENT OF SECURITIES' CLASSIFICATIONS The Company used the opportunity provided by an implementation guide on SFAS No. 115 to reclassify approximately $69 million from held for investment to the held for sale portfolio. In connection with this reclassification, gross unrealized gains of $785,000 and gross unrealized losses of $413,000 were recorded in held for sale securities and in shareholders' equity (net of tax) in 1995. 53 EX-23 4 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report incorporated by reference into this Form 10-K of Seacoast Banking Corporation of Florida, into the Company's previously filed registration statements on Form S-8 (File Nos. 33-61925, 33-46504, 33-25267, and 33-22846). ARTHUR ANDERSEN LLP Miami, Florida, March 26, 1996 EX-27 5 FINANCIAL DATA SCHEDULE
9 YEAR DEC-31-1995 DEC-31-1995 56,618 0 58,400 0 159,480 54,158 55,525 414,964 4,066 771,348 660,967 43,907 4,274 0 0 0 429 61,771 771,348 30,707 15,117 2,327 48,151 20,702 21,061 27,090 250 480 24,246 10,591 6,826 0 0 6,826 1.58 1.58 7.63 5,105 134 0 0 3,373 533 420 4,066 4,066 0 0
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