-----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, W0Qe9SNZqjAtpD5JtkYncXnxqA59p3nsEmaHn3RKoMcn1fTk21kvKXjrWwl12vX0 fCpu74C4FaIhQ+EEE5yNtw== 0000950144-97-003090.txt : 19970329 0000950144-97-003090.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950144-97-003090 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 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: 97566253 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, 1996 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 incorporation or organization) (IRS employer identification number) 815 Colorado Avenue, Stuart, Florida 34994 ------------------------------------ ----- (Address of principal executive offices) (Zip code)
(561) 287-4000 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12 (b) of the Act: None ---- Securities registered pursuant to Section 12 (g) of the Act: Class A Common Stock, Par Value $.10 ------------------------------------ (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by a 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 28, 1997: Class A Common Stock, $.10 par value - $89,381,915 based upon the closing sale price on February 28, 1997, 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 - $2,744,183 based upon the closing sale price on February 28, 1997, 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 28 1996: Class A Common Stock, $.10 Par Value - 3,872,694 shares Class B Common Stock, $.10 Par Value - 384,638 shares 3 Documents Incorporated by Reference: 1. Portions of the registrant's 1997 Proxy Statement for the Annual Meeting of Shareholders ("1997 Proxy Statement") which is part of the Joint Proxy Statement/Prospectus contained in the registrant's Registration Statement on Form S-4, are incorporated by reference into Part III. 4 FORM 10-K INDEX
PAGE ----- PART I - ------ Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security-Holders PART II - ------- Item 5. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure PART III - -------- Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) List of All Financial Statements Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 Notes to Consolidated Financial Statements Report of Independent Certified Public Accountants (a)(2) List of Financial Statement Schedules (a)(3) List of Exhibits (b) Reports on Form 8-K (c) Exhibits (d) Financial Statement Schedules
5 SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS Certain of the matters discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (the "Company") to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results may differ materially from the results anticipated in these forward looking statements due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and interest rate risks; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the Company's market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone and computer and the Internet; and the failure of assumptions underlying the establishment of reserves for possible loan losses. All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these Cautionary Statements. PART I ITEM 1. BUSINESS General Seacoast Banking Corporation of Florida ("Seacoast") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("BHC Act"). Seacoast was incorporated under the laws of the State of Florida on January 24, 1983, by the management of its principal subsidiary, First National Bank and Trust Company of the Treasure Coast ("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. Through the Bank and its broker-dealer subsidiary, Seacoast offers a full array of deposit accounts and retail banking services, engages in consumer and commercial lending and provides a wide variety of trust and asset management services, as well as securities and annuity products. Seacoast's primary service area is the "Treasure Coast", which, as defined by Seacoast, consists of the counties of Martin, St. Lucie and Indian River on Florida's southeastern coast. The Bank operates banking offices in the following cities: five in Stuart, two in Palm City, one in Jensen Beach, two on Hutchinson Island, one in Hobe Sound, two in Vero Beach, one in Sebastian, four in Port St. Lucie, and one in Ft. Pierce. Most of the banking offices have one or more Automatic Teller Machines (ATMs) which provide customers with 24-hour access to their deposit accounts. Seacoast is a member of two state-wide funds transfer systems known as the "HONOR System" and the "Presto System", which permit banking customers access to their accounts at over 21,800 locations in eighteen states in the Southeast. The HONOR System also permits the Bank's customers access to their accounts via other systems outside the State of Florida. Customers can also use the Bank's "MoneyPhone" system to access information on their loan and deposit account balances, and to transfer funds between linked accounts, make loan payments, as well as to 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. The Company recently began offering PC banking for personal computers. 6 Seacoast has three indirect subsidiaries. FNB Brokerage Services, Inc. ("FNB Brokerage") provides brokerage services. South Branch Building, Inc. is a general partner in a partnership which constructed a branch facility. Big O RV Resort, Inc. was formed to own and operate certain properties acquired through foreclosure, however it is currently inactive. The operations of these subsidiaries contribute less than 10% of the consolidated assets and revenues of Seacoast. As a bank holding company, Seacoast is a legal entity separate and distinct from its subsidiaries. Seacoast coordinates the financial resources of the consolidated enterprise and maintains financial, operational and administrative systems that allow centralized evaluation of subsidiary operations and coordination of selected policies and activities. Seacoast's operating revenues and net income are derived primarily from its subsidiaries through dividends, fees for services performed and interest on advances and loans. As of December 31, 1996, Seacoast and its subsidiaries employed 335 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. 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 (of which $313,000 remains outstanding as an intangible asset at December 31, 1996). 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, 1996, intangible assets resulting from this acquisition include goodwill of $3,882,000 and core deposit premium of $1,662,000. Following the acquisition, the Bank closed its existing East Ocean office location to move to a more attractive location acquired from American Bank, and continued operation of an office location owned by American Bank in southern Martin County. See "Item 2. Properties". As of February 19, 1997, Seacoast entered into an Agreement and Plan of Merger (the "PSHC Agreement") with Port St. Lucie National Bank Holding Corp. ("PSHC"), pursuant to which PSHC will merge with and into Seacoast (the "PSHC Merger"). It is anticipated that immediately after the "PSHC Merger, PSHC's subsidiary bank, Port St. Lucie National Bank, will merge (the with and into the Bank. Under the terms of the PSHC Agreement, 900,000 shares of Seacoast Class A Common Stock will be issued for all the outstanding shares of PSHC common stock, warrants and options to purchase common stock of PSHC. The value of the transaction is approximately $26 million based on Seacoast's closing Class A share price of $28.75 on February 18, 1997. The PSHC Merger is subject to regulatory approvals and approvals by PSHC's shareholders and Seacoast's shareholders. It is intended that the transaction qualify for the pooling-of-interests method of accounting for business combinations. Seacoast and the Bank will be the entities resulting the PSHC Merger and Bank Merger. There are no assurances that the transaction will be consummated. As of December 31, 1996, PSHC had total consolidated assets of approximately $130 million, total consolidated deposits of approximately $119 million and total consolidated shareholders' equity of approximately $10 million. 7 Florida law permits statewide branching. Seacoast anticipates future expansion within its market area by opening additional offices and facilities. New banking facilities were opened in November 1994 in St. Lucie West, a new community west of Port St. Lucie, and in May 1996 in a WalMart superstore in Sebastian in northern Indian River County. Most recently, in January 1997, Seacoast opened a branch in Nettles Island, a predominately modular home community on Hutchinson Island in southern St. Lucie County. Plans are underway for the addition of three branch offices in Indian River County in 1997. See "Item 2. Properties". Competition Seacoast and its subsidiaries operate in the highly competitive markets of Martin, St. Lucie and Indian River Counties in southeastern Florida. The Bank not only competes with other banks in its markets, but it also competes with various other types of financial institutions for deposits, certain commercial, fiduciary and investment services and various types of loans and certain other financial services. The Bank also competes for interest-bearing funds with a number of other financial intermediaries and investment alternatives, including mutual funds, brokerage and insurance firms, investment advisors, governmental and corporate bonds, and other securities. Seacoast and its subsidiaries compete not only with financial institutions based in the State of Florida, but also with a number of large out-of-state and foreign banks, bank holding companies and other financial institutions which have an established market presence in the State of Florida, or which offer products by mail, telephone or over the Internet. Many of Seacoast's competitors are engaged in local, regional, national and international operations and have greater assets, personnel and other resources than Seacoast. Some of such competitors are subject to less regulation and/or more favorable tax treatment than Seacoast. Supervision and Regulation Bank holding companies and banks are extensively regulated under federal and state law. This discussion is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the status or regulations applicable to the Company's and the Bank's business. Supervision, regulation, and examination of the Company and the Bank and their respective Subsidiaries by the bank regulatory agencies are intended primarily for the protection of depositors rather than holders of Company capital stock. Any change in applicable law or regulation may have a material effect on the Company's business. Bank Holding Company Regulation The Company, as a bank holding company, is subject to supervision and regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve") under the BHC Act. The Company is required to file with the Federal Reserve periodic reports and such other information as the Federal Reserve may request. The Federal Reserve examines the Company, and may examine the Company's Subsidiaries. The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all the assets of any bank, or for a merger or consolidation of a bank holding company with another bank holding company. With certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company, may, however, engage in or acquire an interest in a company that engages in activities which the Federal Reserve has determined by regulation or order to be so closely related to banking or managing or controlling banks to be a proper incident 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 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 8 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 Reigle-Neal Interstate Banking and Branch Efficiency Act of 1994 ("Interstate Banking Act"), which became effective on September 29, 1995, repealed the prior statutory restrictions on interstate acquisitions of banks by bank holding companies, such that Seacoast and any other bank holding company located in Florida may now acquire a bank located in any other state, and any bank holding company located outside Florida may lawfully acquire any bank based in another state, regardless of state law to the contrary, in either case subject to certain deposit-percentage, 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 to either "opt in" and accelerate the date after which interstate branching is permissible or "opt out" and prohibit interstate branching altogether. Florida has responded to the enactment of the Interstate Banking Act by enacting the Florida Interstate Branching Act (the "Florida Branching Act"), which is effective June 1, 1997 and permits interstate branching through merger transactions under the interstate Banking Act. Under the Florida Branching Act, with the prior approval of the Florida Department of Banking and Finance, a Florida bank may establish, maintain and operate one or more branches in a state other than the State of Florida pursuant to a merger transaction in which the Florida bank is the resulting bank. In addition, the Florida Branching Act provides that one or more Florida banks may enter into a merger transaction with one or more out-of-state banks, and an out-of-state bank resulting from such transaction may maintain and operate the branches of the Florida bank that participated in such merger. An out-of-state bank, however, is not permitted to acquire a Florida bank in a merger transaction unless the Florida bank has been in existence and continuously operated for more than three years. Federal Reserve policy requires a bank holding company to act as a source of financial strength and to take measures to preserve and protect bank subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted. In addition, under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company's subsidiary depository institutions are responsible for any losses to the Federal Deposit Insurance Corporation ("FDIC") as a result of an affiliated depository institution's failure. As a result, a bank holding company may be required to loan money to its subsidiaries in the form of capital notes or other instruments which qualify as capital under regulatory rules. However, any loans from the holding company to such subsidiary banks likely will be unsecured and subordinated to such bank's depositors and perhaps to other creditors of the bank. On February 20, 1997, the Federal Reserve adopted, effective April 21, 1997, amendments to its Regulation Y implementing certain provisions of The Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA"), which was signed into law on September 30,1996. Among other things, these amendments to Federal Reserve Regulation Y reduce the notice and application requirements applicable to bank and nonbank acquisitions and de novo expansion by well-capitalized and well-managed bank holding companies; expand the list of nonbanking activities permitted under Regulation Y; reduce certain limitations on previously permitted activities; and amend Federal Reserve anti-tying restrictions to allow banks greater flexibility to package products and services with their affiliates. 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 and, as such, its deposits are insured by the FDIC to the maximum extent provided by law. See "FDIC Insurance Assessments". Under 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. 9 The OCC recently has adopted a series of revisions to its regulations, including expanding the powers exercisable by operations subsidiaries. These changes also modernize and streamline corporate governance, investment and fiduciary powers. In December 1996, the OCC adopted the Federal Financial Institutions Examination Council's ("FFIEC") updated statement of policy entitled "Uniform Financial Institutions Rating System" ("UFIRS") effective January 1, 1997. UFIRS is an internal rating system used by the federal and state regulators for assessing the soundness of financial institutions on a uniform basis and for identifying those institutions requiring special supervisory attention. Under the previous UFIRS, each financial institution was assigned a confidential composite rating based on an evaluation and rating of five essential components of an institution's financial condition and operations including Capital adequacy: Asset quality, Management, Earnings, and Liquidity. The major changes include an increased emphasis on the quality of risk management practices and the addition of a sixth component for Sensitivity to market risk. For most institutions, the FFIEC has indicated that market risk primarily reflects exposures to changes in interest rates. When regulators evaluate this component, consideration is expected to be given to: management's ability to identify, measure, monitor, and control market risk; the institution's size; the nature and complexity of its activities and its risk profile; and the adequacy of its capital and earnings in relation to its level of market risk exposure. Market risk is rated based upon, but not limited to, an assessment of the sensitivity of the financial institution's earnings or the economic value of its capital to adverse changes in interest rates, foreign exchanges rates, commodity prices, or equity prices; management's ability to identify, measure, monitor, and control exposure to market risk; and the nature and complexity of interest rate risk exposure arising from nontrading positions. FNB Brokerage, a Bank subsidiary, is registered as a securities broker-dealer under the Exchange Act and is regulated by the Securities and Exchange Commission ("SEC"). As a member of the National Association of Securities Dealers, Inc. ("NASD"), it also is subject to examination and supervision of its operations and accounts by the NASD. 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 regulator, in connection with its examination of the institution, to assess the institution's record of assessing and meeting the credit needs of the community served by that institution, including low- and moderate-income neighborhoods. The regulatory agency's assessment of the institution's record is made available to the public. Further, such assessment is required of any institution which has applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage for a newly-chartered institution; (iii) establish a new branch office that accepts deposits, (iv) relocate an office; or (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the records of each subsidiary depository institution of the applicant bank holding company, and such records may be the basis for denying the application. 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. 10 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 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 points for its rating on each test, and the points are combined to produce an overall composite rating of either outstanding, satisfactory, needs to improve, or substantial non-compliance. Under the agencies' rating guidelines, an institution that receives an "outstanding" rating on the lending test will receive an overall rating of at least "satisfactory", and no institution can receive an overall rating of "satisfactory" unless it receives a rating of at least "low satisfactory" on its lending test. In addition, evidence of discriminatory or other illegal credit practices would adversely affect an institution's overall rating. Under the new regulations, an institution's CRA rating would continue to be taken into account by its primary federal regulator in considering various types of applications. As a result of the Bank's most recent CRA examination in August, 1995, the Bank received a "satisfactory" CRA rating. The Bank is also subject to, among other things, the provisions of the Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"), both of which prohibit discrimination based on race or color, religion, national origin, sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. Based on recently heightened concerns that some prospective home buyers and other borrowers may be experiencing discriminatory treatment in their efforts to obtain loans, the Department of Housing and Urban Development, the Department of Justice (the "DOJ"), and 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 11 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 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 and certain core deposit intangibles ("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 bank regulatory 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. 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 12 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, 1996, 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% 12.5% Total Capital ratio 8.0% 15.0% 13.5% Leverage ratio 3.0-5.0% 8.3% 7.4%
FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit a capital restoration plan for approval. For a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of 5% of the depository institution's total assets at the time it became undercapitalized and the amount necessary to bring the institution into compliance with applicable capital standards. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the controlling holding company fails to fulfill its obligations under FDICIA and files (or has filed against it) a petition under the federal Bankruptcy Code, the claim would be entitled to a priority in such bankruptcy proceeding over third party creditors of the bank holding company. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. Because the Company and the Bank exceed applicable regulatory capital requirements, the respective managements of the Company and the Bank do not believe that the provisions of FDICIA have any material impact on the Company and the Bank or their respective operations. Bank regulators continue to indicate their desire to base capital requirements upon the riskiness of the activities conducted and have long discussed proposals 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. FDICIA also contains a variety of other provisions that may affect the operations of the Company and the Bank, including new reporting requirements, regulatory standards for estate lending, "truth in savings" provisions, the requirement that a depository institution give 90 days prior notice to customers and regulatory authorities 13 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. 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 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 the interest received by a bank on its loans and securities holdings, constitutes the major portion of a bank's earnings. Thus, the earnings and growth of Seacoast and the Bank are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve, and the reserve requirements on deposits. The nature and timing of any changes in such policies and their effect on Seacoast and its subsidiaries cannot be predicted. FDIC Insurance Assessments The Bank is subject to FDIC deposit insurance assessments. The Bank's deposits are primarily insured by the FDIC's Bank Insurance Fund ("BIF"). The Bank is also a member of the Savings Association Insurance Fund ("SAIF") to the extent that the Bank owns savings deposits acquired in 1991 from the RTC in the American Pioneer transaction. In 1996, the FDIC adopted a new risk-based premium schedule which decreased the assessment rates for BIF depository institutions. Under this schedule, which took effect for assessment periods after January 1, 1996, the annual premiums ranged from zero to $.27 for every $100 of deposits. Prior to January 1, 1996, the annual premiums ranged from $.04 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 regulator 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 were assessed premiums for the SAIF which have remained unchanged at $.23 to $.31 per $100 of deposits, based upon the institution's assigned risk category and supervisory evaluation. In the third quarter of 1996 a special one-time SAIF assessment of $0.657 per $100 of deposits was levied, resulting in a $500,000 charge to the Bank. Effective October 1, 1996 for all Oakar and Sasser institutions, and January 1, 1997 for all other institutions, the SAIF assessment was changed to four to 31 basis points per annum. During the years ended December 31, 1995, and 1996, the Bank paid $728,000 and $632,000, respectively, in BIF and SAIF deposit premiums. The FDIC's Board of Directors has retained the 1996 BIF assessment schedule of zero to 27 basis points per annum for the first semiannual period of 1997. In addition, the FDIC Board eliminated 14 the $2,000 minimum annual assessment and authorized the refund of the fourth-quarter minimum assessment of $500 paid by certain BIF-insured institutions on September 30, 1996 by crediting such amount against each BIF member's first semiannual assessment in 1997. EGRPRA recapitalized the FDIC's SAIF Fund to bring it into parity with BIF. As part of this recapitalization, The Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized FICO to levy assessments on BIF-assessable deposits at a rate equal to one-fifth of the FICO assessment rate that is applied to deposits assessable by SAIF. The actual annual assessment rates for FICO for 1997 have been set at 1.30 basis points for BIF-assessable deposits and 6.48 basis points for SAIF deposits. Community Development Act The Community Development Act has several titles. Title I provides for the establishment of community development financial institutions to provide equity investments, loans and development services to financially underserved communities. A portion of this Title also contains various provisions regarding reverse mortgages, consumer protections for qualifying mortgages and hearings for home equity lending, among other things. Title II provides for small business loan securitization and securitizations of other loans, including authorizing a study on the impact of additional securities based on pooled obligations. Small business capital enhancement is also provided. Title III of the Act provides for paperwork reduction and regulatory improvement, including certain examination and call report issues, as well as changes in certain consumer compliance requirements, certain audit requirements and real estate appraisals, and simplification and expediting processing of bank holding company applications, merger applications and securities filings, among other things. It also provides for commercial mortgage-related securities to be added to the definition of a "mortgage-related security" in the Exchange Act. This will permit commercial mortgages to be pooled and securitized, and permit investment in such instruments without limitation by insured depository institutions. It also pre-empts state legal investment and blue sky laws related to qualifying commercial mortgage securities. Title IV deals with money laundering and currency transaction reports, and Title V reforms the national flood insurance laws and requirements. The nature, timing, and effect upon the Company of any changes resulting from the Community Development Act cannot be predicted. Legislative and Regulatory Changes Various changes have been proposed with respect to restructuring and changing the regulation of the financial services industry. FIRREA required a study of the deposit insurance system. On February 5, 1991, the Department of the Treasury released "Modernizing the Financial System; Recommendations for Safer, More Competitive Banks". Among other matters, this study analyzed and made recommendations regarding reduced bank competitiveness and financial strength, overextension of deposit insurance, the fragmented regulatory system and the under-capitalized deposit insurance fund. It proposed restoring competitiveness by allowing banking organizations to participate in a full range of financial services outside of insured commercial banks. Deposit insurance coverage would be narrowed to promote market discipline. EGRPRA streamlined the non-banking activities application process for well-capitalized and well-managed bank holding companies. Under EGRPRA, qualified bank holding companies may commence a regulatory approved non-banking activity without prior notice to the Federal Reserve, and instead, written notice is required within 10 days after commencing the activity. Under EGRPRA, the prior notice period is reduced to 12 days in the event of any non-banking acquisition or share purchase or de novo non-banking activity previously approved by order of the Federal Reserve, but not yet implemented by regulations, assuming the size of the acquisition or proposed activity does not exceed 10% of risk-weighted assets of the acquiring bank holding company and the consideration does not exceed 15% of Tier 1 capital. Other legislative and regulatory proposals regarding changes in banking, and the regulation of banks, thrifts and other financial institutions and bank and bank holding company powers are being considered by the executive branch of the Federal government, Congress and various state governments, including Florida. Among other items under consideration are the possible combination of 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 15 broaden the powers of "financial services" companies to own and control depository institutions and engage in activities not closely related to banking. Certain of these proposals, if adopted, could significantly change the regulation of banks and the financial services industry. It cannot be predicted whether any of these proposals will be adopted, and, if adopted, how these proposals will affect the Company and the Bank. In a case presented to the United States Supreme Court in 1996, the court found that the powers of banking affiliates to conduct insurance business in the State of Florida was permissible. Statistical Information Certain statistical information (as required by Guide 3) is included in response to Item 7 of this Annual Report on Form 10-K. Certain statistical information is included in response to Item 6 and Item 8 of this Annual Report on Form 10-K. ITEM 2. PROPERTIES Seacoast and the Bank's main office occupy approximately 62,000 square feet of a 68,000 square foot building in Stuart, Florida. The building, together with an adjacent 10-lane drive-in banking facility and an additional 27,000 square foot office building, are situated on approximately eight acres of land in the center of Stuart zoned for commercial use. The building and land are owned by the Bank, which leases out portions of the building not utilized by Seacoast and the Bank to unaffiliated parties. Adjacent to the main office, the Bank leases approximately 21,400 square feet of office space to house operational departments, primarily information systems and retail support. The Bank owns its 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, 1996, 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 1,920 square foot bank building and land are owned by the Bank. Improvements include three drive-in teller lanes and one drive-up ATM as well as a parking lot and landscaping. 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 2,300 square foot branch area on the first floor has been remodeled and operates as a full service branch including five drive-in lanes and a drive-up ATM. The remaining 2,300 square feet on the ground floor was sold in June 1996 and the third floor was sold in December 1995. All of the second floor has been leased to tenants. 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 foot building. The Bank leases the building and utilizes 3,450 square feet of the available space. The balance is sublet by the Bank to other business tenants. The Bank has improved its premises with three drive-in lanes, bank equipment, and furniture and fixtures, all of which are owned by the Bank. A drive-up ATM will be added by March 31, 1997. Hutchinson Island, opened on December 31, 1984, is in a shopping center located on a coastal barrier island, close to numerous oceanfront condominium developments. In 1993, the branch was expanded from 2,800 16 square foot to 4,000 square feet and is under long term lease to the Bank. The Bank has improved the premises with bank equipment, a walk-up ATM and three drive-in lanes, all owned by the Bank. Rivergate, 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, with three drive-in lanes and a drive-up ATM. Northport was acquired on June 28, 1986 from Citizens Federal Savings & Loan Association of Miami. This property consists of a storefront under long term lease in the St. Lucie Plaza Shopping Center, Port St. Lucie, of approximately 4,000 square feet. This office was closed March 31, 1994 and the property is utilized for storage. Wedgewood Commons, opened in April 1988, is located on an out parcel under long term lease in the Wedgewood Commons Shopping Center, south of Stuart on U.S. Highway 1. A 2,800 square foot building, four drive-in lanes, a walk- up ATM and bank equipment, all of which is owned by the Bank are located on the leased property. Bayshore, opened on September 27, 1990, occupies 3,520 square feet of a 50,000 square foot shopping center located in Port St. Lucie. The Bank has leased the premises under a long term lease agreement and has made improvements to the premises, including three drive-in lanes and a walk-up ATM, all of which are owned by the Bank. Hobe Sound, acquired from the Resolution Trust Corporation on December 23, 1991, is a two story facility containing 8,000 square feet and is centrally located in Hobe Sound. Improvements include two drive-in teller lanes, a drive-up ATM, and equipment and furniture, all of which are owned by the Bank. Fort Pierce, acquired from the Resolution Trust Corporation on December 23, 1991, is a 2,895 square foot facility located in the heart of Fort Pierce and has three drive-in lanes and a drive-up ATM. Equipment and furniture are all owned by the Bank. Martin Downs , purchased from the Resolution Trust Corporation in February 1992, is a 3,960 square foot bank building located at a high traffic intersection in Palm City, an emerging commercial and residential community west of Stuart. Improvements include three drive-in teller lanes, a drive-up ATM, equipment and furniture. Tiffany, purchased from the Resolution Trust Corporation in May 1992, is a two story facility which contains 8,250 square feet and is located on a corner of U.S. Highway One in Port St. Lucie offering excellent exposure in one of the fastest growing residential areas in the region. The second story which contains 4,250 square feet is leased to tenants. Three drive-in teller lanes, a walk-up ATM, equipment and furniture are utilized and owned by the Bank. Vero Beach, purchased from the Resolution Trust Corporation in February 1993, is a 3,300 square foot bank building located in Vero beach on U.S. Highway One and represents the Bank's initial presence in this Indian River County market. A leasehold interest in a long-term land lease was acquired. Improvements include three drive-in teller lanes, a walk-up ATM, equipment and furniture, all of which are owned by the Bank. Beachland was opened in February 1993, in 4,150 square feet of leased space located in a three-story commercial building on Beachland Boulevard, the main beachfront thoroughfare, in Vero Beach, Florida. An additional 1,050 square feet was leased during 1996. This facility has 2 drive-in teller lanes, a drive-up ATM, furniture and equipment, all owned by the Bank. 17 Sandhill Cove, opened in September 1993, is 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, opened in November 1994, is in a 3,600 square foot building located at 1320 S.W. St. Lucie Blvd, Port St. Lucie. This facility has three drive-in teller lanes and a drive-up ATM, all owned by the Bank. Mariner Square, acquired from American Bank in April 1995, is a 3,600 square foot leased space located on the ground floor of a three story office building located on U.S.Highway 1 between Hobe Sound and Port Salerno. Approximately 700 square feet of the space is sublet to a tenant. The space occupied by the Bank has been improved to be a full service branch with two drive-in lanes, one serving as a drive-up ATM lane as well as a drive-in teller lane, all owned by the Bank. Sebastian opened in May 1996 as an in-store branch within a 174,000 square foot WalMart Superstore located on U.S. 1 in northern Indian River County. The leased space occupied by the Bank totals 865 square feet. The facility has a walk-up ATM, owned by the Bank. For additional information, refer to Notes F and I of the Notes to Consolidated Financial Statements in the 1996 Annual Report of Seacoast incorporated herein by reference pursuant to Item 8 of this document. In 1997, four new branches, one in St. Lucie County and three in Indian River County, will open: Nettles Island was opened in January 1997 in southern St. Lucie County on Hutchinson Island. It occupies 350 square feet of leased space in a predominantly modular home community. Furniture and equipment are owned. No ATM or drive-in lanes are offered. South Vero Square is expected to open in April 1997 in a 3,150 square foot building owned by the Bank on South U.S. 1 in Vero Beach. The facility will include three drive-in teller lanes, a drive-up ATM, and furniture and equipment, all owned by the Bank. Oak Point is anticipated to open in June 1997. It will occupy 9,000 square feet of leased space on the first and second floor of a 19,700 square foot 3-story building, presently under construction in Indian River County. The office will be in close proximity to Indian River Memorial Hospital and the peripheral medical community adjacent to the hospital. The facility includes three drive-in teller lanes, a walk-up ATM, and furniture and equipment, all owned by the Bank. Route 60 Vero is scheduled to open in June 1997 as well. Similar to the Sebastian office, this facility will be housed in a WalMart Superstore in western Vero Beach in Indian River County. The branch will occupy 750 square feet of leased space and will include a walk-up ATM. 18 ITEM 3. LEGAL PROCEEDINGS The Company and its Subsidiaries, because of the nature of their business, are subject to various threatened and pending legal actions 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. 19 PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Class A Common Stock is traded in the over the counter market and quoted on the Nasdaq National Market System. There is no established public trading market for the Class B Common Stock of Seacoast. As of March 1, 1997, there were approximately ______ record holders of the Class A Common Stock and ______ record holders of the Class B Common Stock. Seacoast Class A Stock is traded in the over-the-counter market and is quoted on the Nasdaq National Market ("Nasdaq National Market") under the symbol "SBCFA". The following table sets forth the high and low sale prices per share of Seacoast Class A Stock on the Nasdaq National Market and the dividends paid per share of Seacoast Class A Stock for the indicated periods.
Annual Dividends Declared Sale Price Per Share of Per Share of Seacoast Class A Stock Seacoast Class A Stock ----------------------- ---------------------- High Low ---- --- 1995 ---- First Quarter . . . . . . . . . . . . . . . 19.25 16.25 $0.13 Second Quarter . . . . . . . . . . . . . . 19.50 17.75 0.13 Third Quarter . . . . . . . . . . . . . . . 22.50 18.00 0.13 Fourth Quarter . . . . . . . . . . . . . . 25.25 21.625 0.15 1996 ---- First Quarter . . . . . . . . . . . . . . . 22.75 20.25 0.15 Second Quarter . . . . . . . . . . . . . . 22.75 21.00 0.15 Third Quarter . . . . . . . . . . . . . . . 24.00 21.75 0.15 Fourth Quarter . . . . . . . . . . . . . . 26.50 23.25 0.20
Seacoast's Articles of Incorporation prohibit the declaration or payment of cash dividends on Class B Common Stock unless cash dividends are declared or paid on Class A Common Stock in an amount equal to at least 110% of any cash dividend on Class B Common Stock. Dividends on Class A Common Stock payable in shares of Class A Common Stock shall be paid to holders of Class A Common and Class B Common Stock at the same time and on the same basis. In 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 paid. In 1996, cash dividends of $.65 per share of Class A Common Stock and $.585 per share of Class B Common Stock were paid. Dividends from the Bank are Seacoast's primary source of funds to pay dividends on Seacoast capital stock. Under the National Bank Act, the Bank may in any calendar year, without the approval of the OCC, pay dividends to the extent of net profits for that year, plus retained net profits for the preceding two years (less any required transfers to surplus). The need to maintain adequate capital in the Bank also limits dividends that may be paid to Seacoast. Information regarding a restriction on the ability of the Bank to pay dividends to Seacoast is contained in Note B of the "Notes to Consolidated Financial Statements" contained in Item 8 hereof. See also "Supervision and Regulation" contained in Item 1 of this document. 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. 20 If, in the particular circumstances, the OCC determines that the payment of dividends would constitute an unsafe or unsound banking practice, the OCC may, among other things, issue a cease and desist order prohibiting the payment of dividends. This rule is not expected to adversely affect the Bank's ability to pay dividends to Seacoast. See "Supervision and Regulation" contained in Item 1 of this document. Each share of Class B Common Stock is convertible by its holder into one share of Class A Common Stock at any time prior to a vote of shareholders authorizing a liquidation of Seacoast. 21 ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA (Dollars in thousands except per share data) 1996 1995 1994 - ---------------------------------------------------------------------------- FOR THE YEAR Net interest income $ 31,102 $ 27,090 $ 25,200 Provision for loan losses 450 250 145 Noninterest income: Securities gains 72 480 752 Other 8,714 7,517 6,475 Noninterest expenses 27,517 24,246 23,005 Income before income taxes 11,921 10,591 9,277 Provision for income taxes 4,312 3,765 3,091 Income before cumulative effect of a change in accounting principle 7,609 6,826 6,186 Cumulative effect on prior years of a change in accounting for income taxes 0 0 0 Net income 7,609 6,826 6,186 Core earnings (1) 12,464 10,425 8,690 Per share data: Income before cumulative effect of a change in accounting principle 1.77 1.58 1.44 Cumulative effect on prior years of a change in accounting for income taxes 0.00 0.00 0.00 Net income 1.77 1.58 1.44 Cash dividends paid: Class A common 0.65 0.54 0.49 Book value 15.68 14.75 12.98 Dividends to net income 35.9% 33.4% 33.5% AT YEAR END Assets $808,408 $771,348 $662,711 Securities 208,800 213,638 258,661 Net loans 467,311 410,898 289,417 Deposits 692,757 660,967 559,629 Shareholders' equity (2) 66,769 62,200 55,584 Performance ratios: Return on average assets 1.05% 1.00% 1.02% Return on average equity 11.48 11.05 10.69 Net interest margin (3) 4.63 4.32 4.57 Average equity to average assets 9.14 9.01 9.51 - --------------------------------------------------------------------------------
22
SELECTED FINANCIAL DATA (Dollars in thousands except per share data) 1993 1992 - ----------------------------------------------------------------- FOR THE YEAR Net interest income $ 26,059 $ 27,477 Provision for loan losses 150 1,103 Noninterest income: Securities gains 1,204 1,759 Other 7,588 7,693 Noninterest expenses 24,345 26,655 Income before income taxes 10,356 9,171 Provision for income taxes 3,488 3,022 Income before cumulative effect of a change in accounting principle 6,868 6,149 Cumulative effect on prior years of a change in accounting for income taxes 264 0 Net income 7,132 6,149 Core earnings (1) 10,421 10,234 Per share data: Income before cumulative effect of a change in accounting principle 1.60 1.45 Cumulative effect on prior years of a change in accounting for income taxes 0.06 0.00 Net income 1.66 1.45 Cash dividends paid: Class A common 0.45 0.41 Book value 14.13 11.71 Dividends to net income 26.5% 27.9% AT YEAR END Assets $639,404 $613,558 Securities 283,732 292,935 Net loans 255,995 247,754 Deposits 533,486 551,368 Shareholders' equity (2) 60,257 49,707 Performance ratios: Return on average assets 1.19% 1.02% Return on average equity 13.47 12.92 Net interest margin (3) 4.80 5.07 Average equity to average assets 8.81 7.89 - -----------------------------------------------------------------
(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 $(1,482,000) in 1996, $(705,000) in 1995, $(4,391,000) in 1994 and $4,667,000 in 1993 related to adoption of Financial Accounting Standard Board No. 115 "Accounting for Certain Investments in Debt and Equity Securities". (3) On a fully taxable equivalent basis. 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 1996 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 in Item 8 hereof, and the Selected Financial Data provided in Item 6 hereof. Net income for 1996 totalled $7,609,000 or $1.77 per share, compared with $6,826,000 or $1.58 per share in 1995 and $6,186,000 or $1.44 per share in 1994. Return on average assets was 1.05 percent and return on average shareholders' equity was 11.48 percent for 1996, compared to the prior year's results of 1.00 percent and 11.05 percent, respectively, and 1994's results of 1.02 percent and 10.69 percent, respectively. Earnings in 1996 were reduced by a one-time special assessment of $500,000 ($316,000 after taxes) to replenish the Savings Association Insurance Fund (SAIF) and a noncash nonrecurring charge of $600,000 ($379,000 after taxes) related to the termination and settlement of the Company's pension plan. The Company acquired $62 million in deposits and $46 million in loans from American Bank Capital Corporation of Florida (American) and its subsidiary, American Bank of Martin County, on April 14, 1995. The transaction was accounted for as a purchase. TABLE 1 CONDENSED INCOME STATEMENT AS A PERCENT OF AVERAGE ASSETS (Tax equivalent basis)
1996 1995 1994 ------------------ Net interest income 4.33% 4.00% 4.21% Provision for loan losses 0.06 0.04 0.02 Noninterest income Securities gains 0.01 0.07 0.12 Other 1.20 1.10 1.06 Noninterest expenses 3.79 3.53 3.78 ------------------ Income before income taxes 1.69 1.60 1.59 Provision for income taxes including tax equivalent adjustment 0.64 0.60 0.57 ------------------ NET INCOME 1.05% 1.00% 1.02% ==================
24 RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income (fully taxable equivalent) for 1996 rose $3,986,000 or 14.5 percent, due to increased business volumes and an improved net interest margin, which increased from 4.32 percent a year ago to 4.63 percent. In 1996, rates paid for all types of interest bearing deposits decreased, resulting in declines of: 22 basis points to 1.36 percent for NOW accounts, 16 basis points to 1.77 percent for savings deposits, 73 basis points to 2.12 percent for money market deposits and 21 basis points to 5.27 percent for time deposits. In addition, the interest rates paid for short term borrowings, primarily sweep repurchase agreements with customers of the Company's subsidiary bank, decreased 45 basis points to 4.14 percent. The resulting rate paid for all interest bearing liabilities in 1996 was 3.64 percent, 21 basis points lower than in 1995. TABLE 2 CHANGES IN AVERAGE EARNING ASSETS (DOLLARS IN THOUSANDS)
Increase/(Decrease) Increase/(Decrease) ---------------------- -------------------- 1996 vs 1995 1995 vs 1994 - ------------------------------------------------------------------------------ Securities: Taxable $(25,973) (11.4)% $(35,028) (13.4)% Nontaxable (1,436) (10.6) (435) (3.1) Federal funds sold and other short term investments (15,063) (38.4) 25,119 177.8 Loans, net 85,428 24.0 85,713 31.7 ------------------------------------------- TOTAL $ 42,956 6.8% $ 75,369 13.5% ===========================================
During 1996, average total deposits increased $24,873,000 or 4.1 percent. Average time deposits increased $5,863,000 or 2.1 percent, while on an aggregate basis, average balances for NOW, savings and money market accounts, which are lower cost interest bearing deposits, increased $5,782,000 or 2.2 percent. Most significant of all, the deposit mix was favorably affected by an increase in average noninterest bearing demand deposits of $13,228,000 or 18.3 percent. The yield on earning assets improved 6 basis points during 1996 to 7.69 percent. A more favorable mix of higher yield loans versus investments offset individual yield declines for investment securities, federal funds sold and the loan portfolio of 24 basis points, 59 basis points and 10 basis points, respectively. Average earning assets for 1996 increased $42,956,000 or 6.8 percent, compared to the prior year. Although $29.7 million in fixed rate residential mortgage loans were securitized in 1996, average total loans grew $85,428,000 or 24.0 percent. Partially funding the growth in loans were declines in average investment securities of $27,409,000 or 11.4 percent and average federal funds sold of $15,063,000 or 38.4 percent. 25 TABLE 3 RATE/VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS) Amount of Increase (Decrease) (Dollars in thousands)
1996 vs 1995 ------------ Due to Change In: Volume Rate Mix Total - -------------------------------------------------------------- INTEREST INCOME Securities: Taxable $(1,641) $ (600) $ 68 $(2,173) Nontaxable (120) 26 (3) (97) ----------------------------------- (1,761) (574) 65 (2,270) Federal funds sold and other short term investments (893) (230) 88 (1,035) Loans 7,373 (341) (82) 6,950 ----------------------------------- TOTAL INTEREST INCOME 4,719 (1,145) 71 3,645 INTEREST EXPENSE NOW (including Super NOW) (818) (233) 111 (940) Savings deposits (125) (106) 11 (220) Money market accounts 1,825 (649) (463) 713 Time deposits 321 (588) (12) (279) ----------------------------------- 1,203 (1,576) (353) (726) Federal funds purchased and other short term borrowings 467 (36) (46) 385 ----------------------------------- TOTAL INTEREST EXPENSE 1,670 (1,612) (399) (341) ----------------------------------- NET INTEREST INCOME $ 3,049 $ 467 $ 470 $ 3,986 ===================================
TABLE 3 (CONT'D) RATE/VOLUME ANALYSIS (ON A TAX EQUIVALENT BASIS) AMOUNT OF INCREASE (DECREASE) (DOLLARS IN THOUSANDS)
1995 vs 1994 -------------------------------- Due to Change In: Volume Rate Mix Total - -------------------------------------------------------- INTEREST INCOME Securities: Taxable $(2,116) $ 733 $ (98) $(1,481) Nontaxable (37) (22) 1 (58) -------------------------------- (2,153) 711 (97) (1,539) Federal funds sold and other short term investments 1,118 209 371 1,698 Loans 6,915 1,522 483 8,920 -------------------------------- TOTAL INTEREST INCOME 5,880 2,442 757 9,079 INTEREST EXPENSE NOW (including Super NOW) (166) (52) 5 (213) Savings deposits (245) (31) 5 (271) Money market accounts 205 260 26 491 Time deposits 3,178 2,830 1,115 7,123 -------------------------------- 2,972 3,007 1,151 7,130 Federal funds purchased and other short term borrowings (5) 96 (1) 90 -------------------------------- TOTAL INTEREST EXPENSE 2,967 3,103 1,150 7,220 -------------------------------- NET INTEREST INCOME $2,913 $ (661) $ (393) $ 1,859 ================================
26 TABLE 4 CHANGES IN AVERAGE INTEREST BEARING LIABILITIES (Dollars in thousands)
Increase/(Decrease) Increase/(Decrease) ---------------------- -------------------- 1996 vs 1995 1995 vs 1994 - --------------------------------------------------------------- NOW (including Super NOW) $(51,858) (47.5)% $(10,223) (8.6)% Savings deposits (6,457) (10.2) (12,431) (16.4) Money market accounts 64,097 71.3 8,114 9.9 Time deposits 5,863 2.1 78,325 39.4 Federal funds 10,162 130.0 (133) (1.7) purchased and other short term borrowings ------------------------------------------- TOTAL $ 21,807 4.0% $ 63,652 13.2% ===========================================
Since July 1995, the Federal Reserve Bank has lowered short term interest rates 75 basis points, with an identical decline occurring in the prime rate to 8.25%. This resulted in excellent loan demand in the Treasure Coast market. Expectations are for loan demand to remain strong during 1997, with loans exceeding anticipated deposit growth on a percentage basis. 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 during 1995, 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 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. 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 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. The yield on earning assets increased 59 basis points during 1995 to 7.63 percent. Yield increases in 1995 for securities, federal funds sold and the loan portfolio of 27 basis points, 148 basis points and 56 basis points, respectively, were recorded and an improved mix of earning assets contributed to the higher yield on earning assets. The acquisition of American and loan demand, which picked up pace during 1995, provided an $85,713,000 or 31.7 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 in 1995, while average federal funds sold grew $25,119,000 or 177.8 percent. In part, the increase in federal funds sold was related to securities sales of $115,107,000 and maturities of $62,586,000 occuring during 1995, offset by purchases of securities of $114,244,000. These short term assets matured or were sold and utilized in 1996 to fund loan growth. For the years ended December 31, 1996 and 1995, 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. 27 TABLE 5 THREE-YEAR SUMMARY BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollars in thousands) 1996 - -------------------------------------------------------------- Yield/ Average Balance Interest Rate - -------------------------------------------------------------- Assets Earning assets: Securities Taxable $200,881 $12,164 6.06% Nontaxable 12,118 1,038 8.57 -------------------------- Total Securities 212,999 13,202 6.20 Federal funds sold and other short term investments 24,183 1,292 5.34 Loans (2) 441,313 37,666 8.53 -------------------------- TOTAL EARNING ASSETS 678,495 52,160 7.69 Allowance for loan losses (4,245) Cash and due from banks 20,362 Bank premises and equipment 16,052 Other assets 14,774 -------------------------- $725,438 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: NOW (Including Super NOW) $ 57,257 $ 781 1.36% Savings deposits 57,028 1,008 1.77 Money market 153,933 3,271 2.12 accounts Time deposits 283,124 14,916 5.27 Federal funds 17,978 744 4.14 purchased and other short term borrowings -------------------------- TOTAL INTEREST BEARING 569,320 20,720 3.64 LIABILITIES Demand deposits 85,538 Other liabilities 4,304 -------------------------- 659,162 Shareholders' 66,276 Equity -------------------------- $725,438 ========================== Interest expense 3.06% as % of earning assets Net interest $31,440 4.63% income/yield on earning assets ==========================
28 TABLE 5 (CONT'D) THREE-YEAR SUMMARY BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollars in thousands) 1995 - --------------------------------------------------------------------- Average Yield/ Balance Interest Rate - --------------------------------------------------------------------- ASSETS Earning assets: Securities Taxable $226,854 $14,337 6.32% Non Taxable 13,554 1,135 8.37 -------------------------- TOTAL SECURITIES 240,408 15,472 6.44 Federal funds sold and other short term investments 39,246 2,327 5.93 Loans (2) 355,885 30,716 8.63 -------------------------- TOTAL EARNING ASSETS 635,539 48,515 7.63 Allowance for loan losses (3,845) Cash and due from banks 24,152 Bank premises and equipment 16,769 Other assets 13,228 -------------------------- $685,843 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: NOW (Including Super NOW) $109,115 $ 1,721 1.58% Savings deposits 63,485 1,228 1.93 Money market accounts 89,836 2,558 2.85 Time deposits 277,261 15,195 5.48 Federal funds purchased and other short term borrowings 7,816 359 4.59 -------------------------- TOTAL INTEREST BEARING LIABILITIES 547,513 21,061 3.85 Demand deposits 72,310 Other liabilities 4,258 -------------------------- 624,081 Shareholders' Equity 61,762 -------------------------- $685,843 ========================== Interest expense as % of earning assets 3.31% Net interest income/yield on earning assets $27,454 4.32% ==========================
29 TABLE 5 (CONT'D) THREE-YEAR SUMMARY BALANCES, INTEREST INCOME AND EXPENSES, YIELDS AND RATES (1)
(Dollars in thousands) 1994 - --------------------------------------------------------------- Average Yield/ Balance Interest Rate - --------------------------------------------------------------- ASSETS Earning assets: Securities Taxable $261,882 $15,818 6.04% Nontaxable 13,989 1,193 8.53 -------------------------- TOTAL SECURITIES 275,871 17,011 6.17 Federal funds sold and other short term investments 14,127 629 4.45 Loans (2) 270,172 21,796 8.07 -------------------------- TOTAL EARNING ASSETS 560,170 39,436 7.04 Allowance for loan losses (3,545) Cash and due from banks 23,737 Bank premises and equipment 16,182 Other assets 11,951 -------------------------- $608,495 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: NOW (Including Super NOW) $119,338 $ 1,934 1.62% Savings deposits 75,916 1,499 1.97 Money market accounts 81,722 2,067 2.53 Time deposits 198,936 8,072 4.06 Federal funds purchased and other short term borrowings 7,949 269 3.38 -------------------------- TOTAL INTEREST BEARING LIABILITIES 483,861 13,841 2.86 Demand deposits 63,226 Other liabilities 3,518 -------------------------- 550,605 Shareholders' Equity 57,890 -------------------------- $608,495 ========================== Interest expense as % of earning assets 2.47% Net interest income/yield on earning assets $25,595 4.57% ==========================
(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. 30 PROVISION FOR LOAN LOSSES The improved loan demand and growth in total loans outstanding in 1996 resulted in relatively higher provisioning, but was mitigated by a continued favorable net charge off ratio (0.05 percent in 1996 and 0.03 percent in 1995, versus 0.20 percent for the Company's peer group), and resulted in a provision for loan losses in 1996 of $450,000. The provision for loan losses in 1995 was $250,000, and in 1994 was $145,000. 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 both senior management and 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 a forecast of increased loan demand and balances outstanding, management believes higher provisions for loan losses will result in 1997, compared to 1996 and 1995. NONINTEREST INCOME Table 6 shows noninterest income for the years indicated. Noninterest income, excluding gains from sales of securities, increased $1,197,000 or 15.9 percent in 1996 compared to the prior year. The largest increase in noninterest income occurred in brokerage commissions and fees which increased $491,000 or 31.6 percent. Lower interest rates in 1996 caused renewed interest in financial products compared to 1995. Trust income increased, by $161,000 or 8.4 percent. Additional sales staff in trust and the repricing of trust services in 1995 accounted for the improved results. The Company intends to continue to emphasize its brokerage and trust services to both existing and new customers, as expectations are that these financial products will remain in demand. Also increasing, service charges on deposits grew $358,000 or 14.6 percent, a result of internal growth, certain services being repriced, and a full year impact of the acquisition. 31 TABLE 6 NONINTEREST INCOME (Dollars in thousands)
Year Ended % Change ------------------------------------------- 1996 1995 1994 96/95 95/94 - --------------------------------------------------------------- Service charges on deposit accounts $2,812 $2,454 $2,033 14.6% 20.7% Trust fees 2,069 1,908 1,722 8.4 10.8 Other service charges and fees 1,193 1,098 1,028 8.7 6.8 Brokerage commissions and fees 2,046 1,555 1,190 31.6 30.7 Other 594 502 502 18.3 0.0 ------------------------------------------- 8,714 7,517 6,475 15.9 16.1 Securities gains 72 480 752 (85.0) (36.2) ------------------------------------------- TOTAL $8,786 $7,997 $7,227 9.9% 10.7% ===========================================
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 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 during 1995 were in brokerage commissions and fees and trust fees which increased $365,000 or 30.7 percent and $186,000 or 10.8 percent, respectively, year over year. An uncertain rate of economic growth and inflation contributed to financial market turmoil during 1994 and resulted in reduced brokerage activity. Residential real estate lending is an important segment of the Company's lending activities, and exposure to market interest rate volatility is managed at times by the sale of fixed rate loans in the secondary market. Consumer interest in fixed rate mortgages returned in the second half of 1995 and in 1996 due to lower interest rates, while higher rates in 1994 had consumers switching to lower initial rate periodic adjustable rate mortgages. While no sales were recorded in 1996 and 1995, during 1994, a gain of $45,000 on the sale of $24.7 million in fixed rate residential mortgages was recorded in other income. During 1996 and 1995, the proceeds from sales of securities and funds received from maturing securities have been utilized to fund seasonal deposit declines and lending activities. As a result of sales of securities in 1996, a $72,000 net gain was recognized. 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. 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. 32 NONINTEREST EXPENSES Table 7 shows the Company's noninterest expenses for the years indicated. TABLE 7 NONINTEREST EXPENSES (Dollars in thousands)
Year Ended ------------------------- 1996 1995 1994 ------------------------- Salaries and wages $10,738 $ 9,650 $ 8,682 Pension and other employee 2,531 1,951 1,815 benefits Occupancy 2,304 2,331 2,230 Furniture and equipment 1,781 1,900 2,027 Marketing 1,632 1,367 1,262 Legal and professional fees 844 742 888 FDIC assessments 632 728 1,191 Foreclosed and repossessed asset management and 165 64 20 dispositions Amortization of intangibles 661 418 88 Other 6,229 5,095 4,802 ------------------------- TOTAL $27,517 $24,246 23,005 =========================
33 TABLE 7 (CONT'D) NONINTEREST EXPENSES (Dollars in thousands)
% Change ------------- 96/95 95/94 ------------- Salaries and wages 11.3% 11.1% Pension and other employee benefits 29.7 7.5 Occupancy (1.2) 4.5 Furniture and equipment (6.3) (6.3) Marketing 19.4 8.3 Legal and professional fees 13.7 (16.4) FDIC assessments (13.2) (38.9) Foreclosed and repossessed asset management and dispositions 157.8 220.0 Amortization of intangibles 58.1 375.0 Other 22.3 6.1 ------------- TOTAL 13.5% 5.4% ===== =====
When compared to 1995, noninterest expenses increased $3,271,000 or 13.5 percent in 1996. Included in the increase was a one-time charge of $500,000 in Federal Deposit Insurance Corporation (FDIC) assessments (incurred in the third quarter) to recapitalize the Savings Association Insurance Fund (SAIF). The one-time charge related to the deposits of a failed local thrift acquired by the Company in 1991 from the Resolution Trust Corporation (RTC). In 1996, salaries and wages increased $1,088,000 or 11.3 percent and employee benefits rose $580,000 or 29.7 percent. Commercial loan officers were added in 1996 and increased the costs in lending by $297,000. Higher revenue in brokerage resulted in increased commissions paid of $270,000 over the last twelve months. The full-year impact of a new branch acquired from American in April 1995 and the addition of a new branch in August 1996, increased salaries and wages $209,000. A one-time $600,000 charge to terminate the Company's defined benefit plan increased employee benefit costs. However, revenue growth exceeded the increase in salaries and wages and employee benefits, and resulted in the Company's overhead ratio (excluding the one-time SAIF charge of $500,000) declining to 67.3 percent from 69.3 percent a year ago. Occupancy and furniture and equipment expenses, on an aggregate basis, declined $146,000 or 3.5 percent, principally due to lower depreciation costs associated with furniture and equipment. Marketing expenses increased $265,000 or 19.4 percent, primarily as a result of increases in sales promotion and ad agency production and print costs associated with heightened efforts to market products and services within the Company's market. Legal and professional fees increased $102,000 or 13.7 percent. Usage of audit services to independently review internal controls and legal services to assist with regulatory filings and to defend actions brought against the Company were greater in 1996, compared to prior year. Costs associated with foreclosed and repossessed asset management increased $101,000, but totaled 34 only $165,000. These results reflect the level of activity with respect to problem asset management. The premium for FDIC and SAIF insurance was $96,000 or 13.2 percent lower in 1996, and would have been lower if not for the one-time charge of $500,000. The FDIC insurance 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 examination ratings imposed by governing regulatory authorities on individual financial institutions, while the rate charged to savings and loans ranged from 0.23 percent to 0.29 percent. This action by the FDIC effected a reduction in expense in 1995 of $463,000 or 38.9 percent. For 1997, the rate for commercial banks has been reduced to 0.013 percent and for savings and loans to 0.065 percent. The rate the Company's subsidiary bank is being assessed has been and is the lowest rate indicated, based on the guidelines. Amortization of intangible assets increased $243,000 or 58.1 percent as a result of a full-year impact for the acquisition of American, for which the Company recorded amortizable intangible assets of goodwill and core deposits. The other expense category increased $1,134,000 or 22.3 percent in 1996 with higher costs incurred for education and training of $178,000, telephone and communications systems of $110,000, data processing of $201,000, and stationery, printing and supplies of $93,000. Other expenses in this category increased as well, reflecting higher activity and business volumes. When compared to 1994, noninterest expenses increased $1,241,000 or 5.4 percent in 1995. 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 and profit sharing plans. Occupancy expenses and furniture and equipment expenses, on an aggregate basis, declined $26,000 in 1995. Marketing expenses increased $105,000 or 8.3 percent, primarily as a result of increases in sales promotion and public relations costs. Legal and professional fees decreased $146,000 or 16.4 percent and costs associated with foreclosed and repossessed asset management totaled only $64,000. Amortization of intangible assets increased $330,000 or 375.0 percent as a result of the acquisition of American and the other expense category increased $293,000 or 6.1 percent in 1995. The increase in the other expense category was primarily caused by higher postage and special delivery expenditures and telephone costs, up $154,000 and $101,000, respectively. INCOME TAXES Income taxes for the year 1996 were $4,312,000, 14.5 percent above the $3,765,000 for 1995, which was 21.8 percent above the $3,091,000 for 1994. Income taxes as a percentage of income before taxes were 36.2 percent for 1996, compared to 35.5 percent in 1995 and 33.0 percent in 1994. Most of the increase in rate in 1996 is due to a 35 full year impact of amortization of goodwill and core deposit intangibles associated with the acquisition of American which are not deductible expenses for tax purposes. In addition to the impact of the acquisition, the increase in rate in 1995 as compared to 1994 reflects higher provisioning for state income taxes, a result of lower intangible taxes paid that can be taken as a credit. The Company has $1,234,000 of deferred tax assets, for which no valuation allowance is required because $880,000 of this balance is related to unrealized securities 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 4.8 percent between December 31, 1995 and December 31, 1996. In comparison, the Company increased its assets 16.4 percent between December 31, 1994 and December 31, 1995. CAPITAL RESOURCES The Company's ratio of shareholders' equity to period end assets was 8.26 percent at December 31, 1996, compared with 8.06 percent one year earlier. This ratio is impacted by SFAS No. 115, "Accounting for Certain Debt and Equity Securities," by which a securities valuation allowance of $1,482,000 was recognized at December 31, 1996, compared to a securities valuation allowance of $705,000 at December 31, 1995. Excluding the effect of this standard, the Company's ratio of shareholders' equity to period end assets was 8.44 percent and 8.16 percent, respectively, at year end 1996 and 1995. Book value per common share outstanding totalled $15.68 at December 31, 1996, compared to $14.75 at December 31, 1995. Without the effect of SFAS No. 115, book value was $16.03 at December 31, 1996, compared to $14.92 at December 31, 1995, an increase of 7.4 percent. 36 Table 8 summarizes the Company's capital position and selected ratios. TABLE 8 CAPITAL RESOURCES (Dollars in thousands)
December 31 1996 1995 1994 - --------------------------------------------------------------- TIER 1 CAPITAL Common stock $ 429 $ 429 $ 428 Additional paid in capital 18,314 18,612 18,498 Retained earnings 50,419 45,540 41,049 Treasury Stock (911) (1,676) 0 Valuation allowance (801) (645) (1,257) Intangibles (5,713) (6,488) 0 ------------------------------ Total Tier 1 capital 61,737 55,772 58,718 TIER 2 CAPITAL Allowance for loan losses, 4,286 4,066 3,373 as limited ------------------------------ Total Tier 2 capital 4,286 4,066 3,373 ------------------------------ Total risk based capital $ 66,023 $ 59,838 $ 62,091 ============================== Risk weighted assets $440,039 $402,736 $313,728 ============================== Tier 1 risk based capital 14.03% 13.85% 18.72% ratio Regulatory minimum 8.00 8.00 8.00 Total risk based capital ratio 15.00 14.86 19.79 Tier 1 capital to adjusted 8.32 7.93 9.42 total assets (1) Regulatory minimum 4.00 4.00 4.00 Shareholders' equity to assets 8.26 8.06 8.39 Average shareholders' equity 9.14 9.01 9.51 to average total assets
(1) Intangible assets have been deducted from tier 1 capital and adjusted total assets for this calculation. Tangible book value per common share, reflecting a deduction from shareholders' equity for intangible assets of $6,388,000 and $6,884,000 at December 31, 1996 and 1995, respectively, was 14.18 percent at December 31, 1996, compared to 13.12 percent at December 31, 1995, an increase of 8.1 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. 37 TABLE 9 LOANS OUTSTANDING (Dollars in thousands)
December 31 1996 1995 1994 - ------------------------------------------------------ Real estate mortgage $378,227 $335,031 $229,713 Real estate construction 11,880 10,540 8,728 Commercial and financial 22,857 17,205 11,296 Installment loans to 58,187 51,959 42,912 individuals Other loans 446 229 141 ---------------------------- TOTAL $471,597 $414,964 $292,790 ============================
TABLE 9 (CONT'D) LOANS OUTSTANDING (Dollars in thousands)
December 31 1993 1992 - -------------------------------------------- Real estate mortgage $205,002 $197,696 Real estate construction 2,710 3,680 Commercial and financial 9,692 8,626 Installment loans to 42,158 41,430 individuals Other loans 55 413 ------------------ TOTAL $259,617 $251,845 ==================
Total loans (net of unearned income and excluding the allowance for loan losses) were $471,597,000 at December 31, 1996, $56,633,000 or 13.6 percent more than at December 31, 1995. The increase in the Company's loan balances also reflects the impact of the securitization of $29.7 million in fixed rate residential mortgage loans during 1996. No sales of fixed rate residential loans were transacted in 1995. At December 31, 1996, the Company's mortgage loan balances secured by residential properties amounted to $255,295,000 or 54.1 percent of total loans. The next largest concentration was loans secured by commercial real estate which totalled $112,833,000 or 23.9 percent. Most of the commercial real estate loans were made to local businesses and professionals and are secured by owner occupied properties. Loans and commitments for 1-4 family residential properties and commercial real estate are generally secured with first mortgages on property, with the loan to fair value of the property not exceeding 80 percent on the date the loan is made. The Company was also a creditor for consumer loans to individual customers (primarily secured by motor vehicles) totalling $49,771,000 and unsecured credit cards of $8,416,000. 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 greater than at December 31, 1994. Approximately $46 million in loans were acquired as a result of the acquisition of American during 1995. At December 31, 1995, the Company's portfolio of mortgage loan balances secured by residential properties amounted to $223,813,000 or 53.9 percent of total loans and loans secured by commercial real estate totalled $100,879,000 or 24.3 percent of total loans. Consumer loans to individual customers and credit card loans totalled $44,249,000 and $7,710,000, 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, 1996, approximately $156 million or 61 percent of the Company's mortgage loan balances secured by residential properties were adjustable, compared to $141 million or 63 percent at December 31, 1995. 38 TABLE 10 LOAN MATURITY DISTRIBUTION (Dollars in thousands)
Commercial, Financial & Real Estate December 31, 1996 Agricultural Construction Total - ----------------------------------------------------------- In one year or less $ 4,697 $ 7,570 $12,267 After one year but within five years: Interest rates are 1,716 3,623 5,339 floating or adjustable Interest rates are 12,400 0 12,400 fixed In five years or more: Interest rates are 3,564 183 3,747 floating or adjustable Interest rates are 480 504 984 fixed ------------------------------ TOTAL $22,857 $11,880 $34,737 ==============================
Of the $156 million, $152 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 $33 million were outstanding at December 31, 1996, 2) those limited to a two percent per annum increase and a six percent cap over the life of the loan, of which approximately $63 million in balances existed at year end 1996, and 3) those that have 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 $56 million were outstanding at December 31, 1996. Of the $91 million of new residential loans originated in 1996, $49 million were adjustable rate and $41 million were fixed rate. In comparison, $68 million in new residential loans were originated in 1995, of which $39 million were adjustable rate and $29 million were fixed. The Company generally sells all of the 30-year fixed rate loan originations while retaining a portion of 15-year fixed rate residential loans. During 1996 the Company sold $30.7 million in fixed rate residential loans. Loans secured by residential properties having fixed rates totalled approximately $99 million at December 31, 1996, of which 15- and 30-year mortgages totalled approximately $53 million and $26 million, respectively. Remaining fixed rate balances were comprised of home improvement loans with short maturities less than 15 years. In comparison, fixed rate residential loans totalled $83 million at December 31, 1995, of which 15- and 30-year mortgages totalled approximately $45 million and $23 million, respectively. 39 The Company's historical charge off rates for residential loans has been very low, with only $84,000 in charge offs for the year 1996. The Company expects that the 1997 residential loan demand will be comprised of mostly fixed rate mortgages as a low interest rate environment is anticipated by economists, at least to mid-1997. Fixed rate and adjustable rate loans secured by commercial real estate total approximately $37 million and $76 million, respectively, at December 31, 1996. Of the $76 million, $41 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. 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 $22,857,000 at December 31, 1996 compared to $17,205,000 at December 31, 1995. 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 were much better than that experienced by the banking industry. Second mortgage loans and home equity lines are extended by the Company. No negative amortization loans or lines are offered at the present time. Terms of second mortgage loans include fixed rates for up to 10 years on smaller loans of $30,000 or less. Such loans are sometimes made for larger amounts, with fixed rates, but with balloon payments upon maturities, not exceeding five years. 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 may be requested to submit annual updated financial information and are subject to an annual 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 1992 and through 1996 have averaged approximately $7,508,000 and totalled $11,880,000 at December 31, 1996. 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 $24,724,000 at December 31, 1996, compared to $17,687,000 at the end of 1995. ALLOWANCE FOR LOAN LOSSES Table 11 provides certain information concerning the Company's allowance for loan losses for the years indicated. 40 TABLE 11 SUMMARY OF LOAN LOSS EXPERIENCE (Dollars in thousands)
Year Ended December 31 1996 1995 1994 - ----------------------------------------------------------- Allowance for loan losses Beginning balance $ 4,066 $ 3,373 $ 3,622 Provision for loan losses 450 250 145 Allowance applicable to 0 556 0 loans of purchased company Charge offs: Commercial and 15 53 89 financial Consumer 447 395 442 Commercial real estate 36 54 288 Residential real 84 31 0 estate ------------------------------ TOTAL CHARGE OFFS 582 533 819 Recoveries: Commercial and 58 67 166 financial Consumer 203 205 206 Commercial real estate 91 146 39 Residential real 0 2 14 estate ------------------------------ TOTAL RECOVERIES 352 420 425 ------------------------------ Net loan charge offs 230 113 394 ------------------------------ ENDING BALANCE $ 4,286 $ 4,066 $ 3,373 ============================== Loans outstanding at end $471,597 $414,964 $292,790 of year* Ratio of allowance for 0.91% .98% 1.15% loan losses to loans outstanding at end of year Daily average loans $441,313 $355,885 $270,172 outstanding* Ratio of net charge offs to 0.05% 0.03% 0.15% average loans outstanding
41 TABLE 11 (CONT'D) SUMMARY OF LOAN LOSS EXPERIENCE (Dollars in thousands)
Year Ended December 31 1993 1992 - ------------------------------------------------------ Allowance for loan losses Beginning balance $ 4,091 $ 3,846 Provision for loan losses 150 1,103 Allowance applicable to loans 0 0 of purchased company Charge offs: Commercial and financial 52 109 Consumer 501 788 Commercial real estate 378 413 Residential real estate 25 96 ------------------- TOTAL CHARGE OFFS 956 1,406 Recoveries: Commercial and financial 64 151 Consumer 253 288 Commercial real estate 14 103 Residential real estate 6 6 ------------------- TOTAL RECOVERIES 337 548 ------------------- Net loan charge offs 619 858 ------------------- ENDING BALANCE $ 3,622 $ 4,091 =================== Loans outstanding at end of year* $259,617 $251,845 Ratio of allowance for loan losses to loans outstanding at 1.40% 1.62% end of year Daily average loans outstanding* $255,289 $262,924 Ratio of net charge offs to average loans outstanding 0.24% 0.33%
* Net of unearned income. The allowance for loan losses was $4,286,000 at December 31, 1996, $220,000 higher than one year earlier. The ratio of the allowance for loan losses to total loans outstanding (net of unearned income) was 0.91 percent at December 31, 1996. The ratio was 0.98 percent at December 31, 1995. The allowance for loan losses as a percentage of nonaccrual loans was 279.2 percent at December 31, 1996, compared to 79.6 percent at December 31, 1995. Nonaccrual loans at December 31, 1996, were $1,535,000 or 0.33 percent compared to $5,105,000 or 1.23 percent of outstanding loans at December 31, 1995. The model utilized to analyze the adequacy of the allowance for loan and lease losses takes into account such factors as credit quality, internal controls, audit results, staff turnover, local market economics and loan growth. The resulting lower allowance level is also reflective of the bank's favorable and consistent delinquency trends and historical loss performance. These performance results are attributed to conservative, long-standing and consistently applied loan credit policies and to a knowledgeable, experienced and stable staff. During 1996, the Company experienced net charge offs of $230,000, compared to $113,000 one year earlier. Net charge offs as a percentage of average loans outstanding were 0.05 percent for 1996, slightly higher than in 1995 when the percentage was 0.03 percent, the lowest percentage the Company had 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, 1996. Net consumer loan losses, primarily related to indirect automobile lending, were $244,000 in 1996, versus $190,000 in 1995. Real estate net charge-offs of $29,000 in 1996 compared to net recoveries of $63,000 in 1995. Net commercial and financial loan recoveries were $43,000 in 1996 compared to $14,000 in 1995. 42 Table 12 summarizes the Company's allocation of the allowance for loan losses and information regarding the composition of the loan portfolio at the dates indicated. TABLE 12 ALLOWANCE FOR LOAN LOSSES (Dollars in thousands)
ALLOWANCE AMOUNT December 31 1996 1995 1994 - -------------------------------------------------------------------------------- Commercial and financial $ 322 $ 275 $ 233 loans Real estate loans 2,972 3,108 2,486 Installment loans 992 683 654 ---------------------- TOTAL $4,286 $4,066 $3,373 ====================== ================================================================================
TABLE 12 (CONT'D) ALLOWANCE FOR LOAN LOSSES (Dollars in thousands)
ALLOWANCE AMOUNT December 31 1993 1992 - -------------------------------------------------------------------------------- Commercial and financial $ 295 $ 287 loans Real estate loans 2,812 2,908 Installment loans 515 896 ---------------- TOTAL $3,622 $4,091 ================ ================================================================================
TABLE 12 (CONT'D) ALLOWANCE FOR LOAN LOSSES (Dollars in thousands)
PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS December 31 1996 1995 1994 - ------------------------------------------------------------------------------- Commercial and financial 5.0% 4.2% 3.9% loans Real estate loans 82.7 83.3 81.4 Installment loans 12.3 12.5 14.7 ------------------------- TOTAL 100.0% 100.0% 100.0% ========================= ===============================================================================
TABLE 12 (CONT'D) ALLOWANCE FOR LOAN LOSSES (Dollars in thousands)
PERCENT OF LOANS IN EACH CATEGORY TO TOTAL LOANS December 31 1993 1992 - ------------------------------------------------------------------------------- Commercial and financial loans 3.8% 3.6% Real estate loans 80.0 79.9 Installment loans 16.2 16.5 ------------------- TOTAL 100.0% 100.0% ===================
43 The allowance for loan losses represents management's estimate of an amount adequate in relation to the risk of future losses inherent in the loan portfolio. In its continuing evaluation of the allowance and its adequacy, management considers, among other factors, the Company's loan loss experience, the amount of past due and nonperforming loans, current and anticipated economic conditions, and the values of certain loan collateral, and other assets. The size of the allowance also reflects the large amount of permanent residential loans held by the Company whose historical charge offs and delinquencies have been superior by any comparison. While it is the Company's policy to charge off in the current period loans in which a loss is considered probable, there are additional risks of future losses which cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of 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, 1995, the allowance for loan losses was $4,066,000, $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 net loans outstanding was 0.98 percent at December 31, 1995, compared to 1.15 percent at December 31, 1994. For 1995, the Company had net charge offs of $113,000 compared to $394,000 for the same period in 1994. Real estate loan net recoveries were $64,000 for 1995 compared to net charge offs of $235,000 for the comparable period in 1994. Consumer loan losses were $190,000 for 1995, compared to $236,000 for 1994. Commercial and financial loan recoveries were $14,000 for 1995 versus $77,000 for 1994. 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. 44 NONPERFORMING ASSETS At December 31, 1996, the Company's ratio of nonperforming assets to loans outstanding plus other real estate owned was 0.54 percent, compared to 1.44 percent at December 31, 1995. Nonperforming assets (other real estate owned and nonaccrual loans) at December 31, 1996, were $2,546,000, a decrease of $3,448,000 compared to December 31, 1995. Other real estate owned increased $122,000 while nonaccrual loans decreased $3,570,000 over the past twelve months. Nonaccrual loans totalled $5,105,000 at December 31, 1995, compared to a balance of $2,235,000 at year end 1994. Nonaccrual loans totalling $953,000 at December 31, 1996 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, 1996, 86.8 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. - -------------------------------------------------------------------------------- TABLE 13 NONPERFORMING ASSETS (Dollars in thousands)
December 31 1996 1995 1994 - ------------------------------------------------------------ Nonaccrual loans (1) $ 1,535 $ 5,105 $ 2,235 Renegotiated loans 0 0 0 Other real estate owned 1,011 889 165 ------------------------------ TOTAL NONPERFORMING $ 2,546 $ 5,994 $ 2,400 ASSETS ============================== Amount of loans outstanding $471,597 $414,964 $292,790 at end of year (2) Ratio of total nonperforming 0.54% 1.44% 0.82% assets to loans outstanding and other real estate owned at end of period Accruing loans past due $ 59 $ 134 $ 0 90 days or more
TABLE 13 (CONT'D) NONPERFORMING ASSETS (Dollars in thousands)
December 31 1993 1992 - ----------------------------------------------- Nonaccrual loans (1) $ 3,107 $ 4,359 Renegotiated loans 0 0 Other real estate owned 4,116 5,898 -------- -------- TOTAL NONPERFORMING $ 7,223 $ 10,257 ASSETS ======== ======== Amount of loans outstanding $259,617 $251,845 at end of year (2) Ratio of total nonperforming 2.74% 3.98% assets to loans outstanding and other real estate owned at end of period Accruing loans past due 90 $ 15 $ 9 days or more
(1) Interest income that could have been recorded during 1996 related to nonaccrual loans was $60,000, none of which was included in interest income or net income. All nonaccrual loans are secured. (2) Net of unearned income. 45 Nonperforming assets (other real estate owned and nonaccrual loans) at December 31, 1995, were $5,994,000, an increase of $3,594,000 from December 31, 1994. 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 in 1995 can be attributed to nonperforming loans of American. The ratio at December 31, 1995 would have been 0.89 percent without the acquired problem loans. The increase in nonperforming assets from December 31, 1994 to December 31, 1995 included increases in other real estate owned of $724,000 and nonaccrual loans of $2,870,000. 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, 1996, the Company had $159,133,000 of securities held for sale or 76.2 percent of total securities compared to $159,480,000 or 74.6 percent at December 31, 1995 and $131,288,000 or 51.5 percent at December 31, 1994. The increase in the held for sale portfolio at December 31, 1995 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 $4,838,000 or 2.3 percent in 1996, compared to prior year, and decreased $45,023,000 or 17.4 percent in 1995, compared to 1994. These declines are directly related to growth in the loan portfolio and changes in the portfolio mix. Since 1994, management has lowered the total portfolio's interest rate risk by reducing the average life of the portfolio from 3.8 years at December 31, 1994 to 3.1 years at December 31, 1995 to 2.1 years at December 31, 1996. The percentage of adjustable and floating rate securities in the securities portfolio is 21.9 percent, compared to 25.3 percent last year and 29.6 percent in 1994. Likewise, the held for sale portfolio decreased to an average life of 2.2 years from 3.7 years in 1995 and 5.9 years in 1994. A total of $2,871,000 in securities will mature along with approximately $32 million of periodic principal payments from mortgage back securities in 1997. Management believes most of these funds will be used to fund increases in its consumer and commercial loan portfolio. At December 31, 1996, the Company had unrealized net losses of $951,000 or 0.5 percent of amortized cost. At December 31, 1995, unrealized net gains of $1,056,000 or 0.5 percent were available. While rates have remained low in 1996, a shifting U.S. Treasury yield curve caused an increase in unrealized depreciation of $2,107,000. Conversely, lower interest rates caused an increase in unrealized appreciation of $9,777,000 at December 31, 1995, compared to 1994. 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. 46 TABLE 14 INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (DOLLARS IN THOUSANDS)
- ----------------------------------------------------------- U.S. TREASURY AND U.S. GOVERNMENT AGENCIES - ----------------------------------------------------------- AMORTIZED MARKET WEIGHTED COST VALUE YIELD - ----------------------------------------------------------- MATURITY AT DECEMBER 31, 1996 HELD FOR SALE WITHIN ONE YEAR ONE TO FIVE YEARS $44,749 $44,417 5.64% FIVE TO TEN YEARS 5,027 5,188 6.93 OVER TEN YEARS NO CONTRACTUAL MATURITY ------------------------- TOTAL VALUE $49,776 $49,605 5.77% ========================= Held for Investment Within one year $ 996 998 5.17% One to five years 9,738 9,882 5.31 Five to ten years Over ten years 4,862 4,983 7.32 ------------------------- TOTAL VALUE $15,596 15,863 5.93% ========================= Maturity at December 31, 1995 Held for Sale $34,512 $35,120 5.97% ========================= Held for Investment $17,329 $17,998 6.04% =========================
47 TABLE 14 (CONT'D) INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands)
- ------------------------------------------------------------- Mortgage Backed Securities (Fixed) - ------------------------------------------------------------- Amortized Market Weighted Cost Value Yield - ------------------------------------------------------------- Maturity at December 31, 1996 Held for Sale Within one year $26,581 $26,568 5.67% One to five years 32,307 31,853 6.00 Five to ten years 5,154 5,138 6.89 Over ten years 4,928 4,788 6.73 No contractual maturity ---------------------------- TOTAL VALUE $68,970 $68,347 5.99% ============================ Held for Investment Within one year $ 667 $ 685 5.40% One to five years 18,496 18,642 6.91 Five to ten years Over ten years ---------------------------- TOTAL VALUE $19,163 $19,327 6.86% ============================ Maturity at December 31, 1995 Held for Sale $77,270 $77,216 6.13% ============================ Held for Investment $19,335 $19,469 6.60% ============================
- ------------------------------------------------------------- Mortgage Backed Securities (Adjustable) - ------------------------------------------------------------- Amortized Market Weighted Cost Value Yield - ------------------------------------------------------------- Maturity at December 31, 1996 Held for Sale Within one year $ 438 $ 438 6.09% One to five years 4,090 4,088 6.44 Five to ten years Over ten years No contractual maturity ---------------------------- TOTAL VALUE $ 4,528 $ 4,526 6.40% ============================ Held for Investment Within one year One to five years $ 3,901 $ 3,902 6.42% Five to ten years Over ten years ---------------------------- TOTAL VALUE $ 3,901 $ 3,902 6.42% ============================ Maturity at December 31, 1995 Held for Sale $10,638 $10,789 6.84% ============================ Held for Investment $ 4,502 $ 4,525 6.51% ============================
TABLE 14 (CONT'D) INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands)
- ------------------------------------------------------------- Obligations of States and Political Subdivisions (1) - ------------------------------------------------------------- Amortized Market Weighted Cost Value Yield - ------------------------------------------------------------- Maturity at December 31, 1996 Held for Sale Within one year One to five years Five to ten years Over ten years No contractual maturity ------------------------ TOTAL VALUE $ 0 $ 0 $ 0 ======================== Held for Investment Within one year $ 1,875 $ 1,887 7.82% One to five years 6,301 6,594 9.36 Five to ten years 2,276 2,399 8.46 Over ten years 455 483 8.71 ------------------------ TOTAL VALUE $10,907 $11,363 8.88% ======================== Maturity at December 31, 1995 Held for Sale $ 0 $ 0 0.00% ======================== Held for Investment $12,892 $13,433 8.68% ========================
(1) On a fully taxable equivalent basis. 48 TABLE 14 (CONT'D) INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands)
- ------------------------------------------------------------ Mutual Funds - ------------------------------------------------------------ Amortized Market Weighted Cost Value Yield - ------------------------------------------------------------ Maturity at December 31, 1996 Held for Sale Within one year One to five years Five to ten years Over ten years No contractual maturity $35,377 $34,333 6.05% -------------------------- TOTAL VALUE $35,377 $34,333 6.05% ========================== Held for Investment Within one year One to five years Five to ten years Over ten years -------------------------- TOTAL VALUE $ 0 $ 0 ========================== Maturity at December 31, 1995 Held for Sale $35,577 $34,547 6.12% ========================== Held for Investment $ 0 $ 0 ==========================
Table 14 (cont'd) INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands)
- ------------------------------------------------------------ Other (1) - ------------------------------------------------------------ Amortized Market Weighted Cost Value Yield - ------------------------------------------------------------ Maturity at December 31, 1996 Held for Sale Within one year One to five years Five to ten years Over ten years No contractual maturity $2,321 $2,322 5.70% ------------------------- TOTAL VALUE $2,321 $2,322 5.70% ========================= Held for Investment Within one year One to five years $ 100 $ 100 8.13% Five to ten years Over ten years ------------------------- TOTAL VALUE $ 100 $ 100 8.13% ========================= Maturity at December 31, 1995 Held for Sale $1,794 $1,808 5.30% ========================= Held for Investment $ 100 $ 100 7.50% =========================
49 TABLE 14 (CONT'D) INVESTMENT SECURITIES YIELD, MATURITY AND MARKET VALUE (Dollars in thousands)
TOTAL - ------------------------------------------------------------ Amortized Market Weighted Cost Value Yield - ------------------------------------------------------------ Maturity at December 31, 1996 Held for Sale Within one year $ 27,019 $ 27,006 5.68% One to five years 81,146 80,358 5.82 Five to ten years 10,181 10,326 6.91 Over ten years 4,928 4,788 6.73 No contractual maturity 37,698 36,655 6.03 --------------------------- TOTAL VALUE $160,972 $159,133 5.94% =========================== Held for Investment Within one year $ 3,538 $ 3,570 6.62% One to five years 38,536 39,120 6.86 Five to ten years 2,276 2,399 8.46 Over ten years 5,317 5,466 7.43 --------------------------- TOTAL VALUE $ 49,667 $ 50,555 6.98% =========================== Maturity at December 31, 1995 Held for Sale $159,791 $159,480 6.13% =========================== Held for Investment $ 54,158 $ 55,525 6.91% ===========================
(1) On a fully taxable equivalent basis. TABLE 14 (CONT'D) (DOLLARS IN THOUSANDS)
Gross Gross Amortized Unrealized Unrealized December 31, 1996 Cost Gains Losses - ---------------------------------------------------------------- Held for Sale: U.S.Treasury and $ 49,776 $290 $ (461) U.S.Government Agencies Mortgage Backed Securities: Fixed 68,970 90 (713) Adjustable 4,528 36 (38) Mutual Funds 35,377 (1,044) Other securities 2,321 1 ------------------------------- Total Value $160,972 $417 $(2,256) =============================== Held for Investment: U.S. Treasury and $ 15,596 $267 $ U.S. Government Agencies Mortgage Backed Securities: Fixed 19,163 250 (86) Adjustable 3,901 15 (14) Obligations of States and 10,907 459 (3) Political Subdivisions Other Securities 100 ------------------------------- Total Value $ 49,667 $991 $ (103) ===============================
50 TABLE 14 (CONT'D) (DOLLARS IN THOUSANDS)
Average Years to Market Value Maturity December 31, 1996 - -------------------------------------------------------------------------------- Held for Sale: U.S.Treasury and $ 49,605 2.83 U.S.Government Agencies Mortgage Backed Securities: Fixed 68,347 2.63 Adjustable 4,526 2.46 Mutual Funds 34,333 Other securities 2.322 * -------------------------- Total Value $159,133 2.10 ========================== Held for Investment: U.S. Treasury and $ 15,863 1.15 U.S. Government Agencies Mortgage Backed Securities: Fixed 19,327 2.44 Adjustable 3,902 3.64 Obligations of States 11,363 2.90 and Political Subdivisions Other Securities 100 * -------------------------- Total Value $ 50,555 2.23 ==========================
TABLE 14 (CONT'D) (DOLLARS IN THOUSANDS)
Gross Gross Amortized Unrealized Unrealized December 31, 1995 Cost Gains Losses - ---------------------------------------------------------------- Held for Sale: U.S.Treasury and $ 34,512 $ 645 $ (37) U.S.Government Agencies Mortgage Backed Securities: Fixed 77,270 387 (441) Adjustable 10,638 164 (13) Mutual Funds 35,577 (1,030) Other securities 1,794 14 ------------------------------- Total Value $159,791 $1,210 $(1,521) =============================== Held for Investment: U.S. Treasury and $ 17,329 $ 669 $ U.S. Government Agencies Mortgage Backed Securities: Fixed 19,335 236 (102) Adjustable 4,502 23 Obligations of States 12,892 544 (3) and Political Subdivisions Other Securities 100 ------------------------------- Total Value $ 54,158 $1,472 $ (105) ===============================
51 TABLE 14 (CONT'D) (DOLLARS IN THOUSANDS)
Average Years to Market Value Maturity December 31, 1995 - -------------------------------------------------------------------------------- Held for Sale: U.S.Treasury and $ 35,120 3.58 U.S.Government Agencies Mortgage Backed Securities: Fixed 77,216 3.27 Adjustable 10,789 7.40 Mutual Funds 34,547 Other securities 1,808 * -------------------------- TOTAL $159,480 2.91 ========================== Held for Investment: U.S. Treasury and $ 17,998 2.11 U.S. Government Agencies Mortgage Backed Securities: Fixed 19,469 3.75 Adjustable 4,525 7.52 Obligations of States 13,433 4.35 and Political Subdivisions Other Securities 100 * -------------------------- TOTAL $ 55,525 3.67 ==========================
DEPOSITS Total deposits increased $31,790,000 or 4.8 percent to $692,757,000 at December 31, 1996, compared to one year earlier. The increase was due to growth in noninterest bearing demand deposits of $22,188,000 or 23.1 percent, an increase in certificates of deposit of $100,000 or more of $5,564,000 or 13.5 percent, and a rise in certificates of deposit under $100,000 of $1,471,000 or 0.6 percent. Savings deposits (including NOW and money market deposit accounts) increased $2,567,000 or 0.9 percent. 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 at December 31, 1995 compared to December 31, 1994, 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 in 1995. The increase in certificates of deposits in 1995 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. 52 In part, the increase in demand deposits was related to a $17,930,000 and $5,268,000 increase in public deposits at December 31, 1996 and December 31, 1995, respectively, primarily related to tax receipts collected by the local tax collector. Average noninterest bearing demand deposits comprised 13.4 percent of average deposits for the year ended December 31, 1996, 1.6 percent higher than the 11.8 percent recorded for the same period one year earlier. The Company remains the largest commercial bank in its primary market. TABLE 15 MATURITY OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE (Dollars in thousands)
% OF % of December 31 1996 TOTAL 1995 Total - ------------------------------------------------- Maturity Group: Under 3 months $15,715 33.4% $15,249 36.9% 3 to 6 months 10,064 21.4 11,867 28.7 6 to 12 months 11,905 25.7 8,309 20.1 Over 12 months 9,209 19.5 5,904 14.3 ------------------------------- TOTAL $46,893 100.0% $41,329 100.0% =============================== - --------------------------------------------------------------------------------
SHORT TERM BORROWINGS At December 31, 1996, $45,088,000 in securities sold under agreements to repurchase were outstanding, an increase of $1,181,000 compared to year end 1995. At year end 1996 and 1995, 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 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.) On December 31, 1996, 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 22.5 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 53 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. TABLE 16 INTEREST RATE SENSITIVITY ANALYSIS (1) (Dollars in thousands)
0-3 4-12 1-5 December 31, 1996 Months Months Years - ------------------------------------------------------ Federal funds sold $ 76,250 $ 0 $ 0 Securities (2) 52,900 18,658 108,670 Loans (3) 114,292 115,529 108,692 -------------------------------- Earning assets 243,442 134,187 217,362 Savings deposits (4) 277,184 0 0 Certificates of 91,270 134,436 71,425 deposit Federal funds 45,088 0 0 purchased and other short term borrowings -------------------------------- Interest bearing 413,542 134,436 71,425 liabilities -------------------------------- Interest sensitivity $(170,100) $ (249) $145,937 gap ================================ Cumulative gap $(170,100) $(170,349) $(24,412) ================================ Cumulative gap to earning assets (%) (22.5) (22.5) (3.2) Earning assets to interest bearing liabilities (%) 58.9 99.8 304.3 - ------------------------------------------------------
TABLE 16 (CONT'D) INTEREST RATE SENSITIVITY ANALYSIS (1) (Dollars in thousands)
Over 5 December 31, 1996 Years Total - ---------------------------------------- Federal funds sold $ 0 $ 76,250 Securities (2) 30,411 210,639 Loans (3) 131,549 470,062 ------------------ Earning assets 161,960 756,951 Savings deposits (4) 0 277,184 Certificates of 1 297,132 deposit Federal funds 0 45,088 purchased and other short term borrowings ------------------ Interest bearing liabilities 1 619,404 ------------------ Interest sensitivity gap $161,959 $137,547 ================== Cumulative gap $137,547 ================== Cumulative gap to earning assets (%) 18.2 Earning assets to N/M interest bearing liabilities (%) - ----------------------------------------
(1) The repricing dates may differ from maturity dates for certain assets due to prepayment assumptions. (2) Securities are stated at amortized cost. (3) Excludes nonaccrual loans. (4) This category is comprised of NOW, savings, and money market deposits. If NOW and savings deposits (totalling $126,705,000) were deemed to be repriceable in "4-12 months", the interest sensitivity gap and cumulative gap would be $43,395,000 indicating 5.7% of total earning assets and 84.9% of earning assets to interest bearing liabilities for the "0-3 months" category. N/M Not meaningful. It has been the Company's experience that deposit balances for NOW and savings accounts are stable and subjected to limited repricing when interest rates increase or decrease within a range of 200 basis points. The Company's ALCO uses model simulations to estimate and manage its interest rate sensitivity. The Company has determined that an acceptable level of interest rate risk would be for net interest income to fluctuate no more than 30 percent, given an immediate change in interest rates (up or down) of 200 basis points. At December 31, 1996, net interest income would decline 6.3 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. 54 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 States Treasury securities and securities of United States Government agencies and corporations not pledged to secure public deposits or trust funds. At December 31, 1996, the Company had available federal funds lines of credit of $45,500,000. At December 31, 1996, the Company had $87,445,000 of United States Treasury and Government agency securities and mortgage backed securities not pledged and available for use under repurchase agreements. At December 31, 1995, the amount of securities available and unpledged was $93,352,000. Liquidity, as measured in the form of cash and cash equivalents, totalled $100,590,000 at December 31, 1996, compared to $115,018,000 at December 31, 1995. 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 1996, the cash flow from operations of $10,073,000 was 8.8 percent lower than during the same period of 1995. Cash flows from investing and financing activities reflect the increase in loan and deposit balances experienced in 1996. In 1995, the cash flow from operations of $11,050,000 was 33.0 percent higher than in 1994. EFFECTS ON INFLATION AND CHANGING PRICES The financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the general levels of inflation. However, inflation affects financial institutions' increased cost of goods and services purchased, the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and stockholders' equity. Mortgage originations and refinancings tend to slow as interest rates increase, and likely will reduce the Company's earnings from such activities and the income from the sale of residential mortgage loans in the secondary market. 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 judgements 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. 55 Selected Quarterly Information - -------------------------------------------------------------------------------- Consolidated Quarterly Average Balances, Yields and Rates (1)
1996 QUARTERS - -------------------------------------------------------------------------------- FOURTH Third - -------------------------------------------------------------------------------- AVERAGE YIELD/ Average Yield/ BALANCE RATE Balance Rate - -------------------------------------------------------------------------------- ASSETS Earning Assets Securities Taxable $191,394 6.10% $191,491 5.97% Nontaxable 11,665 8.64 11,675 8.63 ------------------------------------ TOTAL SECURITIES 203,059 6.25 203,166 6.13 Federal funds sold and other short term investments 33,382 5.29 5,023 5.31 Loans (2) 462,803 8.46 445,700 8.46 ------------------------------------ TOTAL EARNING ASSETS 699,244 7.66 653,889 7.71 Allowance for loan losses (4,290) (4,305) Cash and due from banks 21,657 17,483 Bank premises and equipment 16,121 15,968 Other assets 15,283 14,514 ------------------------------------ $748,015 $697,549 ==================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities NOW (including Super NOW) $ 60,660 1.46% $ 51,774 1.39% Savings deposits 54,646 1.79 55,023 1.76 Money market accounts 151,263 2.19 150,976 2.13 Time deposits 293,860 5.23 279,396 5.14 Federal funds purchased and other short term borrowings 20,048 3.97 8,756 4.54 ------------------------------------ TOTAL INTEREST BEARING LIABILITIES 580,477 3.68 545,925 3.60 Demand deposits 94,581 80,447 Other liabilities 4,945 4,151 ------------------------------------ TOTAL 680,003 630,523 Shareholders' equity 68,012 67,026 ------------------------------------ $748,015 $697,549 ==================================== Interest expense as % of earning assets 3.05% 3.01% Net interest income as % of earning assets 4.61% 4.70%
56 SELECTED QUARTERLY INFORMATION (cont'd) - -------------------------------------------------------------------------------- Consolidated Quarterly Average Balances, Yields and Rates (1)
1996 QUARTERS - -------------------------------------------------------------------------------- Second First - -------------------------------------------------------------------------------- Average Yield/ Average Yield/ Balance Rate Balance Rate - -------------------------------------------------------------------------------- ASSETS Earning Assets Securities Taxable $213,636 6.02% $207,211 6.12% Nontaxable 11,892 8.54 13,248 8.45 ----------------------------------- TOTAL SECURITIES 225,528 6.16 220,459 6.26 Federal funds sold and other short term investments 8,389 5.37 50,047 5.38 Loans (2) 434,988 8.47 421,476 8.77 ----------------------------------- TOTAL EARNING ASSETS 668,905 7.65 691,982 7.73 Allowance for loan losses (4,218) (4,167) Cash and due from banks 19,993 22,334 Bank premises and equipment 15,983 16,137 Other assets 14,481 14,817 ----------------------------------- $715,144 $741,103 =================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities NOW (including Super NOW) $ 58,444 1.25% $ 58,172 1.36% Savings deposits 57,915 1.72 60,576 1.81 Money market accounts 155,348 2.02 158,205 2.16 Time deposits 275,880 5.23 283,283 5.47 Federal funds purchased and other short term borrowings 14,566 4.50 28,617 3.95 ----------------------------------- TOTAL INTEREST BEARING LIABILITIES 562,153 3.55 588,853 3.72 Demand deposits 83,407 83,672 Other liabilities 3,942 4,180 ----------------------------------- TOTAL 649,502 676,705 Shareholders' equity 65,642 64,398 ----------------------------------- $715,144 $741,103 =================================== Interest expense as % of earning assets 2.98% 3.17% Net interest income as % of earning assets 4.67% 4.56%
57 SELECTED QUARTERLY INFORMATION (cont'd) - -------------------------------------------------------------------------------- Consolidated Quarterly Average Balances, Yields and Rates (1)
1995 QUARTERS - -------------------------------------------------------------------------------- Fourth Third - -------------------------------------------------------------------------------- Average Yield/ Average Yield/ Balance Rate Balance Rate - -------------------------------------------------------------------------------- ASSETS Earning Assets Securities Taxable $206,519 6.20% $228,446 6.30% Nontaxable 13,403 8.42 13,406 8.38 ----------------------------------- TOTAL SECURITIES 219,922 6.33 241,852 6.41 Federal funds sold and other short term investments 40,207 5.83 22,964 5.82 Loans (2) 399,262 8.56 376,029 8.58 ----------------------------------- TOTAL EARNING ASSETS 659,391 7.65 640,845 7.66 Allowance for loan losses (4,032) (3,975) Cash and due from banks 22,417 24,255 Bank premises and equipment 16,771 17,216 Other assets 14,876 14,782 ----------------------------------- $709,423 $693,123 =================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities NOW (including Super NOW) $ 77,393 1.49% $119,729 1.49% Savings deposits 61,585 1.89 62,711 1.93 Money market accounts 126,229 2.40 78,615 3.04 Time deposits 293,508 5.64 291,049 5.66 Federal funds purchased and other short term borrowings 6,419 4.20 2,710 4.39 ----------------------------------- TOTAL INTEREST BEARING LIABILITIES 565,134 3.92 554,814 3.96 Demand deposits 76,848 72,137 Other liabilities 4,871 3,644 ----------------------------------- TOTAL 646,853 630,595 Shareholders' equity 62,570 62,528 ----------------------------------- $709,423 $693,123 =================================== Interest expense as % of earning assets 3.36% 3.43% Net interest income as % of earning assets 4.29% 4.23%
58 SELECTED QUARTERLY INFORMATION (CONT'D) - -------------------------------------------------------------------------------- Consolidated Quarterly Average Balances, Yields and Rates (1)
1995 QUARTERS - -------------------------------------------------------------------------------- Second First - -------------------------------------------------------------------------------- Average Yield/ Average Yield/ Balance Rate Balance Rate - -------------------------------------------------------------------------------- ASSETS Earning Assets Securities Taxable $231,882 6.44% $240,928 6.33% Nontaxable 13,616 8.43 13,798 8.26 ----------------------------------- TOTAL SECURITIES 245,498 6.55 254,726 6.44 Federal funds sold and other short term investments 49,489 6.05 44,550 5.94 Loans (2) 349,378 8.65 297,533 8.77 ----------------------------------- TOTAL EARNING ASSETS 644,365 7.65 596,809 7.57 Allowance for loan losses (3,933) (3,432) Cash and due from banks 25,022 24,942 Bank premises and equipment 17,366 15,707 Other assets 14,379 8,791 ----------------------------------- $697,199 $642,817 =================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities NOW (including Super NOW) $122,990 1.61% $116,662 1.70% Savings deposits 64,655 1.96 65,036 1.96 Money market accounts 79,690 3.12 74,363 3.12 Time deposits 283,124 5.53 240,630 5.00 Federal funds purchased and other short term borrowings 5,972 4.63 16,328 4.77 ----------------------------------- TOTAL INTEREST BEARING LIABILITIES 556,431 3.89 513,019 3.58 Demand deposits 74,219 65,919 Other liabilities 5,055 3,453 ----------------------------------- TOTAL 635,705 582,391 Shareholders' equity 61,494 60,426 ----------------------------------- $697,199 $642,817 =================================== Interest expense as % of earning assets 3.36% 3.08% Net interest income as % of earning assets 4.29% 4.49% - -------------------------------------------------------------------------------
(1) The tax equivalent adjustment is based on a 34% tax rate. All yields/rates are calculated on an annualized basis. (2) Nonaccrual loans are included in loan balances. Fees on loans are included in interest on loans. 59 SELECTED QUARTERLY INFORMATION - -------------------------------------------------------------------------------- Quarterly Consolidated Income Statement
1996 QUARTERS - -------------------------------------------------------------------------------- (Dollars in thousands except per share data) FOURTH THIRD - -------------------------------------------------------------------------------- Net interest income: Interest income $13,384 $12,590 Interest expense 5,364 4,944 ----------------- Net interest income 8,020 7,646 Provision for loan losses 150 0 ----------------- Net interest income after provision for 7,870 7,646 losses Noninterest income: Service charges on deposit accounts 763 708 Trust fees 519 505 Other service charges and fees 318 279 Brokerage commissions and fees 534 432 Other 135 142 Securities gains (losses) 20 8 ----------------- Total noninterest income 2,289 2,074 Noninterest expenses: Salaries and wages 2,845 2,708 Pension and other employee benefits 671 587 Occupancy 547 582 Furniture and equipment 443 451 Marketing 516 360 Legal and professional fees 215 172 FDIC assessments (37) 554 Foreclosed and repossessed asset management and dispositions 73 91 Amortization of intangibles 166 165 Other 1,638 1,548 ----------------- Total noninterest expenses 7,077 7,218 ----------------- Income before income taxes 3,082 2,502 Provision for income taxes 1,128 916 ----------------- Net income $ 1,954 $ 1,586 ================= PER COMMON SHARE DATA Net income $ 0.45 $ 0.37 ================= Cash dividends declared: Class A common stock $ 0.20 $ 0.15 Market price Class A common stock: Low close 23 1/4 21 3/4 High close 26 1/2 24 Bid price at end of period 26 23 1/2
60 SELECTED QUARTERLY INFORMATION (cont'd) - -------------------------------------------------------------------------------- Quarterly Consolidated Income Statement
- -------------------------------------------------------------------------------- 1996 QUARTERS (Dollars in thousands except per share data) SECOND FIRST - -------------------------------------------------------------------------------- Net interest income: Interest income $12,642 $13,206 Interest expense 4,962 5,450 ----------------- Net interest income 7,680 7,756 Provision for loan losses 150 150 ----------------- Net interest income after provision for 7,530 7,606 losses Noninterest income: Service charges on deposit accounts 678 663 Trust fees 513 532 Other service charges and fees 305 291 Brokerage commissions and fees 569 511 Other 159 158 Securities gains (losses) 20 24 ----------------- Total noninterest income 2,244 2,179 Noninterest expenses: Salaries and wages 2,576 2,609 Pension and other employee benefits 604 669 Occupancy 598 577 Furniture and equipment 458 429 Marketing 388 368 Legal and professional fees 276 181 FDIC assessments 58 57 Foreclosed and repossessed asset management and dispositions (32) 33 Amortization of intangibles 165 165 Other 1,497 1,546 ----------------- Total noninterest expenses 6,588 6,634 ----------------- Income before income taxes 3,186 3,151 Provision for income taxes 1,128 1,140 ----------------- Net income $ 2,058 $ 2,011 ================= PER COMMON SHARE DATA Net income $ 0.48 $ 0.47 ================= Cash dividends declared: Class A common stock $ 0.15 $ 0.15 Market price Class A common stock: Low close 21 20 1/4 High close 22 3/4 22 3/4 Bid price at end of period 22 22 1/4
61 SELECTED QUARTERLY INFORMATION (cont'd) - -------------------------------------------------------------------------------- Quarterly Consolidated Income Statement
1995 QUARTERS (Dollars in thousands except per share data) FOURTH THIRD - -------------------------------------------------------------------------------- Net interest income: Interest income $12,622 $12,284 Interest expense 5,588 5,537 ---------------- Net interest income 7,034 6,747 Provision for loan losses 125 125 ---------------- Net interest income after provision for 6,909 6,622 losses Noninterest income: Service charges on deposit accounts 667 655 Trust fees 513 525 Other service charges and fees 281 291 Brokerage commissions and fees 475 369 Other 139 123 Securities gains (losses) 218 269 ---------------- Total noninterest income 2,293 2,232 Noninterest expenses: Salaries and wages 2,430 2,455 Pension and other employee benefits 509 493 Occupancy 576 604 Furniture and equipment 436 495 Marketing 324 328 Legal and professional fees 192 228 FDIC assessments 102 176 Foreclosed and repossessed asset management and dispositions 46 14 Amortization of intangibles 165 146 Other 1,357 1,198 ---------------- Total noninterest expenses 6,137 6,137 ---------------- Income before income taxes 3,065 2,717 Provision for income taxes 1,172 961 ---------------- Net income $ 1,893 $ 1,756 ================ PER COMMON SHARE DATA Net income $ 0.44 $ 0.40 ================ Cash dividends declared: Class A common stock $ 0.15 $ 0.13 Market price Class A common stock: Low close 21 5/8 18 High close 25 1/4 22 1/2 Bid price at end of period 21 3/4 22
62 SELECTED QUARTERLY INFORMATION (cont'd) - -------------------------------------------------------------------------------- Quarterly Consolidated Income Statement
1995 QUARTERS - --------------------------------------------------------------- (Dollars in thousands except per share data) SECOND FIRST - --------------------------------------------------------------- Net interest income: Interest income $12,203 $11,042 Interest expense 5,402 4,534 ---------------- Net interest income 6,801 6,508 Provision for loan losses 0 0 ---------------- Net interest income after provision 6,801 6,508 for losses Noninterest income: Service charges on deposit accounts 633 499 Trust fees 455 415 Other service charges and fees 259 267 Brokerage commissions and fees 412 299 Other 121 119 Securities gains (losses) 46 (53) ---------------- Total noninterest income 1,926 1,546 Noninterest expenses: Salaries and wages 2,442 2,323 Pension and other employee benefits 497 452 Occupancy 576 575 Furniture and equipment 485 484 Marketing 351 364 Legal and professional fees 175 147 FDIC assessments 225 225 Foreclosed and repossessed asset management and dispositions 31 (27) Amortization of intangibles 86 21 Other 1,239 1,301 ---------------- Total noninterest expenses 6,107 5,865 ---------------- Income before income taxes 2,620 2,189 Provision for income taxes 906 726 ---------------- Net income $ 1,714 $ 1,463 ================ PER COMMON SHARE DATA Net income $ 0.40 $ 0.34 ================ Cash dividends declared: Class A common stock $ 0.13 $ 0.13 Market price Class A common stock: Low close 17 3/4 16 1/4 High close 19 1/2 19 1/4 Bid price at end of period 18 1/2 18 5/16
63 - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Management's Report on Responsibilities for Financial Reporting Management is responsible for the preparation and content of the accompanying financial statements and the other information contained in this report. Management believes that the financial statements have been prepared in conformity with appropriate, generally accepted accounting principles applied on a consistent basis and present fairly Seacoast Banking Corporation of Florida's consolidated financial condition and results of operations. Where amounts must be based on estimates and judgments, they represent the best estimates of management. Management maintains and relies upon an accounting system and related internal accounting controls to provide reasonable assurance that transactions are properly executed and recorded and that the company's assets are safeguarded. Emphasis is placed on proper segregation of duties and authorities, the development and dissemination of written policies and procedures and a complete program of internal audits and management follow-up. In recognition of cost-benefit relationships and inherent control limitations, some features of the control systems are designed to detect rather than prevent errors, irregularities and departures from approved policies and practices. Management believes the system of controls has prevented or detected on a timely basis any occurrences that could be material to the financial statements and that timely corrective actions have been initiated when appropriate. The accompanying 1996 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. DALE M. HUDSON, PRESIDENT and CHIEF EXECUTIVE OFFICER WILLIAM R. HAHL SENIOR VICE PRESIDENT and CHIEF FINANCIAL OFFICER JOHN R. TURGEON CONTROLLER 64 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP Miami, Florida, January 16, 1997. 65 CONSOLIDATED STATEMENTS OF INCOME ================================================================================ Seacoast Banking Corporation of Florida and Subsidiaries
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA) --------------------------------------------- Year Ended December 31 1996 1995 1994 - -------------------------------------------------------------------------------- Interest on securities Taxable $ 12,164 $ 14,337 $ 15,818 Nontaxable 711 780 812 Interest and fees on loans 37,655 30,707 21,782 Interest on federal funds 1,292 2,327 629 sold ---------------------------------------------------- TOTAL INTEREST INCOME 51,822 48,151 39,041 Interest on deposits 5,060 5,507 5,500 Interest on time 14,916 15,195 8,072 certificates Interest on borrowed money 744 359 269 ---------------------------------------------------- TOTAL INTEREST EXPENSE 20,720 21,061 13,841 ---------------------------------------------------- NET INTEREST INCOME 31,102 27,090 25,200 Provision for loan losses 450 250 145 ---------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR 30,652 26,840 25,055 LOAN LOSSES ---------------------------------------------------- Noninterest income Securities gains 72 480 752 Other 8,714 7,517 6,475 Noninterest expenses 27,517 24,246 23,005 ---------------------------------------------------- INCOME BEFORE INCOME 11,921 10,591 9,277 TAXES Provision for income taxes 4,312 3,765 3,091 ---------------------------------------------------- NET INCOME $ 7,609 $ 6,826 $ 6,186 ==================================================== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Per share common stock NET INCOME $ 1.77 $ 1.58 $ 1.44 ==================================================== Average shares outstanding 4,304,962 4,309,590 4,305,592
- -------------------------------------------------------------------------------- See notes to consolidated financial statements. 66 CONSOLIDATED BALANCE SHEETS Seacoast Banking Corporation of Florida and Subsidiaries
(IN THOUSANDS OF DOLLARS) --------------------------- December 31 1996 1995 - ------------------------------------------------------------------------ ASSETS Cash and due from banks $ 24,340 $ 56,618 Federal funds sold 76,250 58,400 Securities: Securities held for sale (at market) 159,133 159,480 Securities held for investment (market values: 1996 - $50,555 and 1995 - $55,525) 49,667 54,158 --------------------------- TOTAL SECURITIES 208,800 213,638 Loans 471,597 414,964 Less: Allowance for loan losses 4,286 4,066 ------------ ------------ NET LOANS 467,311 410,898 Bank premises and equipment 16,110 16,104 Other real estate owned 1,011 889 Core deposit 1,975 2,310 Goodwill 3,882 4,409 Other assets 8,729 8,082 --------------------------- TOTAL ASSETS $808,408 $771,348 =========================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits Demand deposits (noninterest bearing) $118,441 $ 96,253 Savings deposits 277,184 274,617 Other time deposits 250,239 248,768 Time certificates of $100,000 or more 46,893 41,329 --------------------------- TOTAL DEPOSITS 692,757 660,967 Federal funds purchased and securities sold under agreement to repurchase, maturing within 30 days 45,088 43,907 Other liabilities 3,794 4,274 --------------------------- $741,639 709,148 Commitments and Contingent Liabilities (Notes I 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 3,795,501 and outstanding 3,765,301 shares in 1996, and 3,770,819 issued and outstanding 3,700,013 shares in 1995 380 377 Class B common stock, par value $.10 per share authorized 810,000 shares, issued and outstanding 492,529 shares in 1996 and 517,211 shares in 1995 49 52 Additional paid-in capital 18,612 18,612 Retained earnings 50,121 45,540 Less: Treasury Stock (30,200 shares in 1996 (911) (1,676) and 70,806 shares in 1995), at cost --------------------------- 68,251 62,905 Securities valuation allowance (1,482) (705) --------------------------- TOTAL SHAREHOLDERS' EQUITY 66,769 62,200 --------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $808,408 $771,348 ===========================
- ------------------------------------------------------------------------ See notes to consolidated financial statements 67 CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------ Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands of dollars) ---------------------------- Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents Cash flows from operating activities Interest received $ 51,683 $ 49,180 $ 39,869 Fees and commissions received 8,714 7,515 6,431 Interest paid (20,945) (20,815) (13,723) Cash paid to suppliers and (24,758) (21,598) (21,037) employees Income taxes paid (4,621) (3,232) (3,108) ------------------------------- Net cash provided by operating 10,073 11,050 8,432 activities Cash flows from investing activities Maturities of securities held 44,257 36,827 20,200 for sale Maturities of investment 9,669 25,759 12,797 securities held for investment Proceeds from sale of 49,892 115,107 72,521 securities held for sale Proceeds from sale of investment securities held for 0 0 0 investment Purchase of securities held for (65,605) (109,132) (83,358) sale Purchase of securities held for (5,011) (5,112) (11,292) investment Proceeds from sale of loans 0 0 24,699 Net new loans and principal (87,609) (77,011) (44,643) repayments Proceeds from the sale of other 1,081 239 4,143 real estate owned Deletions (additions) to bank (1,640) 43 (1,030) premises and equipment Purchase of American Bank 0 (4,659) 0 Capital Corporation of Florida, net of cash Net change in other assets (251) (87) (299) ------------------------------- Net cash used in investing (55,217) (18,026) (6,262) activities Cash flows from financing activities Net increase (decrease) in 31,798 39,042 26,146 deposits Net increase (decrease) in 1,181 (732) 4,106 federal funds purchased and repurchase agreements Issuance of common stock - Employee Stock Purchase 0 115 181 and Profit Sharing Plans Exercise of stock options 336 (58) 88 Treasury stock acquired 131 (1,676) 0 Dividends paid (2,730) (2,277) (2,070) ------------------------------- Net cash provided by financing 30,716 34,414 28,451 activities ------------------------------- Net increase (decrease) in cash (14,428) 27,438 30,621 and cash equivalents Cash and cash equivalents at 115,018 87,580 56,959 beginning of year ------------------------------- Cash and cash equivalents at end $100,590 $ 115,018 $ 87,580 of year ================================
- ------------------------------------------------------------------- 68 Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
Common Stock ------------------------------------ Class A Class B ------------------------------------ (In thousands of dollars) Shares Amount Shares Amount - -------------------------------------------------------------------------------- Balance at December 31, 1993 3,692,414 $369 571,325 $57 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 Plan 10,339 1 Exercise of stock options 8,000 1 Net income Cash dividends declared Net change in securities valuation equity (allowance) ------------------------------------ Balance at December 31, 1994 3,718,724 372 563,354 56 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 Plan 5,952 1 Treasury stock acquired (71,500) Treasury stock issued 694 for Employee Stock Purchase and Profit Sharing Plan Exercise of stock options Net income Cash dividends declared Net change in securities valuation equity (allowance) ------------------------------------ Balance at December 31, 1995 3,700,013 377 517,211 52 Exchange of Class B common stock for Class A common stock 24,682 3 (24,682) (3) Treasury stock acquired (736) Treasury stock issued for Employee 2,842 Stock Purchase and Profit Sharing Plan Treasury stock issued for exercise of stock options 28,500 Treasury stock issued for stock awards 10,000 Net income Cash dividends declared Net change in securities valuation equity (allowance) ------------------------------------ Balance at December 31, 1996 3,765,301 $380 492,529 $49
================================================================================ See notes to consolidated financial statements. 69 Consolidated Statements of Shareholders' Equity (cont'd) - -------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
Additional Paid-in Retained Restricted/ (In thousands of dollars) Capital Earnings Treasury Stock - -------------------------------------------------------------------- Balance at December 31, 1993 $18,231 $36,933 $ 0 Exchange of Class B common stock for Class A common stock Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plan 180 Exercise of stock options 87 Net income 6,186 Cash dividends declared (2,070) Net change in securities valuation equity (allowance) ---------------------------------- Balance at December 31, 1994 18,498 41,049 0 Exchange of Class B common stock for Class A common stock Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plan 114 Treasury stock acquired (1,692) Treasury stock issued for Employee Stock Purchase and Profit Sharing Plan 16 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 18,612 45,540 (1,676) Exchange of Class B common stock for Class A common stock Treasury stock acquired (16) Treasury stock issued for Employee Stock Purchase and Profit Sharing Plan (1) 62 Treasury stock issued for exercise of stock options (10) (298) 644 Treasury stock issued for stock awards 11 75 Net income 7,609 Cash dividends declared (2,730) Net change in securities valuation equity (allowance) ---------------------------------- Balance at December 31, 1996 $18,314 $50,419 $ (911) ===================================================================
See notes to consolidated financial statements. 70 Consolidated Statements of Shareholders' Equity (cont'd) - -------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
Securities Valuation Equity (In thousands of dollars) (Allowance) Total - -------------------------------------------------------------------------------- Balance at December 31, $ 4,667 $60,257 1993 Exchange of Class B common stock for Class A common stock Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plan 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, (4,391) 55,584 1994 Exchange of Class B common stock for Class A common stock Issuance of Class A common stock for Employee Stock Purchase and Profit Sharing Plan 115 Treasury stock acquired (1,692) Treasury stock issued for Employee Stock Purchase and Profit Sharing Plan 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, (705) 62,200 1995 Exchange of Class B common stock for Class A common stock Treasury stock acquired (16) Treasury stock issued for Employee Stock Purchase and Profit Sharing Plan 61 Treasury stock issued for exercise of stock options 336 Treasury stock issued for stock awards 86 Net income 7,609 Cash dividends declared (2,730) Net change in securities (777) (777) valuation equity (allowance) ----------------- Balance at December 31, 1996 $(1,482) $66,769 ===============================================================================
See notes to consolidated financial statements. 71 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 "Corporate Profile" and "Markets Served" on the inside of the front cover and on page 1 of this annual report. USE OF ESTIMATES: The preparation of these financial statements required the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. Actual results could differ from those estimates. SECURITIES: Securities that may be sold as part of the Company's asset/liability management or in response to, or in anticipation of changes in interest rates and resulting prepayment risk, or for other factors are stated at market value. Such securities are held for sale with unrealized gains of losses reflected as a component of Shareholders' Equity net of tax. Debt securities that the Company has the ability and intent to hold to maturity are carried at amortized cost. Interest income on securities, including amortization of premiums and accretion of discounts is recognized using the interest method. The Company generally anticipates prepayments of principal in the calculation of the effective yield for collateralized mortgage obligations and mortgage backed securities. The adjusted cost of each specific security sold is used to compute gains or losses on the sale of securities. OTHER REAL ESTATE OWNED: Other real estate owned consists of real estate acquired in lieu of unpaid loan balances. These assets are carried at an amount equal to the loan balance prior to foreclosure plus costs incurred for improvements to the property, but no more than the estimated fair value of the property. BANK PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight line method, over the estimated useful lives as follows: building - 25-40 years, furniture and equipment - 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. MORTGAGE SERVICING RIGHTS: The Company adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights an Amendment of SFAS No. 65," as of January 1, 1996. The Company acquires mortgage servicing rights through the origination of mortgage loans, and the Company sells or securitizes those loans with servicing rights retained. Under Statement of Financial Accounting Standards No. 122, the Company allocates the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. The Company assesses its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The portfolio is stratified by two predominant risk characteristics: loan type and fixed versus variable interest rate. Impairment, if any, is recognized through a valuation allowance for each impaired stratum. Mortgage servicing rights are amortized in proportion to, and over the period of, the estimated net future servicing income. 72 For years prior to 1996, the Company had not purchased the rights to service loans and consequently, had not recognized mortgage servicing rights as an asset. The effect of adoption of this Statement in 1996 was not significant. 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, 1996 was approximately $2,000,000. 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, 1996, 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 1997, without prior approval of the Comptroller of the Currency, approximately $ 8,300,000. NOTE C - SECURITIES The amortized cost and market value of securities at December 31, 1996, 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. 73
Held for Investment Held for Sale ----------------------------------------- Amortized Market Amortized Market (In thousands of dollars) Cost Value Cost Value - ---------------------------------------------------------------------- Due in one year or less $ 2,871 $ 2,885 $ 0 $ 0 Due after one year 16,139 16,576 44,749 44,417 through five years Due after five years 2,276 2,399 5,027 5,188 through ten years Due after ten years 5,317 5,466 0 0 ------------------------------------------- 26,603 27,326 49,776 49,605 Mortgage backed 23,064 23,229 73,498 72,873 securities No contractual maturity 0 0 37,698 36,655 ------------------------------------------- $49,667 $50,555 $160,972 $159,133 ======================================================================
Proceeds from sales of securities during 1996 were $49,892,000 with gross gains of $150,000 and gross losses of $78,000. During 1995, proceeds from sales of securities 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. Securities with a carrying value of $82,930,000 at December 31, 1996, were pledged to secure United States Treasury deposits, other public deposits and trust deposits. 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, 1996: Securities Held for Sale: U.S. Treasury and U.S. Government agencies $ 49,776 $ 290 $ (461) $ 49,605 Mortgage backed securities 73,498 126 (751) 72,873 Mutual funds 35,377 0 (1,044) 34,333 Other securities 2,321 1 0 2,322 ------------------------------------------ $160,972 $ 417 $(2,256) $159,133 ========================================== Securities Held for Investment: U.S. Treasury and U.S. Government agencies $ 15,596 $ 267 $ 0 $ 15,863 Mortgage backed securities 23,064 265 (100) 23,229 Tax exempt 10,907 459 (3) 11,363 Other securities 100 0 0 100 ------------------------------------------ $ 49,667 $ 991 $ (103) $ 50,555 ========================================== 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 & 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 ==========================================
74 NOTE D - LOANS An analysis of loans follows:
December 31 (In thousands of dollars) 1996 1995 - --------------------------------------------- Real estate $ 11,880 $ 10,540 construction Real estate mortgage 378,227 335,031 Commercial and 22,857 17,205 financial Installment loans to 58,187 51,959 individuals Other 446 229 ------------------ $471,597 $414,964 ==================
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 $3,777,000 and $3,786,000 at December 31, 1996 and 1995, respectively. During 1996, $3,035,000 of new loans were made and repayments totalled $3,044,000. 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 related valuation allowance are as follows: December 31 1996 1995 RECORDED VALUATION Recorded Valuation (In thousands of dollars) INVESTMENT ALLOWANCE Investment Allowance - ----------------------------------------------------------------------- Impaired loans: Valuation allowance $ 0 $0 $ 585 $14 required No valuation allowance 161 0 681 0 required -------------------------------------- $161 $0 $1,266 $14 ======================================
The valuation allowance is included in the allowance for loan losses. The average recorded investment in impaired loans for the years ended December 31, 1996 and 1995 were $832,000 and $204,000, respectively. 75 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 and $37,000 for the year ended December 31, 1995 and 1996. Transactions in the allowance for loan losses are summarized as follows:
Year Ended December 31 (In thousands of dollars) 1996 1995 1994 - ---------------------------------------------------------------------------- Balance, beginning of year $4,066 $3,373 $3,622 Provision charged to operating expense 450 250 145 Allowance applicable to loans of purchased company 0 556 0 Charge offs (582) (533) (819) Recoveries 352 420 425 ------------------------ Balance, end of year $4,286 $4,066 $3,373 ========================
NOTE F - BANK PREMISES AND EQUIPMENT Bank premises and equipment are summarized as follows:
Accumulated (In thousands of dollars) Depreciation & Net Carrying Amortization Value Cost - --------------------------------------------------------------- DECEMBER 31, 1996 Premises (including land of $18,025 $ 5,363 $12,662 $2,900) Furniture and equipment 12,295 8,847 3,448 ---------------------------------- $30,320 $14,210 $16,110 ================================== DECEMBER 31, 1995 Premises (including land of $17,428 $ 4,727 $12,701 $2,769) Furniture and equipment 11,733 8,330 3,403 ---------------------------------- $29,161 $13,057 $16,104 ==================================
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) 1996 1995 1994 - ------------------------------------------------------- Maximum amount outstanding at any month end $45,088 $43,907 $44,639 Average interest rate outstanding at end of 3.92% 3.91% 4.56% year Average amount outstanding $17,978 $ 7,816 $ 7,949 Weighted average interest 4.14% 4.59% 3.38% rate - -------------------------------------------------------
The Company's subsidiary bank has unused lines of credit to purchase federal funds from its correspondent banks of $45,500,000 at December 31, 1996. 76 NOTE H - EMPLOYEE BENEFITS The Company's profit sharing plan which covers substantially all employees after one year of service includes a matching benefit feature for employees electing to defer the elective portion of their profit sharing compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The profit sharing contributions charged to operations were $801,000 in 1996, $572,000 in 1995 and $539,000 in 1994. The Company's stock option and stock appreciation rights plans were approved by the Company's shareholders on April 25, 1991 and April 25, 1996. The number of shares of Class A common stock that may be purchased pursuant to the 1991 and 1996 plans shall not exceed 300,000 shares for each plan. The Company has granted options on 286,000 shares and 47,000 shares, respectively through December 31, 1996. Under both plans the option exercise price equals the Class A common stock's market price on the date of grant. All options have a four year vesting period and a contractual life of ten years. The following table presents a summary of stock option activity for 1995 and 1996:
- ---------------------------------------------------------------------------------------- Number Weighted Average Option Price Weighted Average of Shares Fair Value Per Share Exercise Price -------------------------------------------------------------------- Options outstanding, January 1, 1995 205,500 $11.00-19.00 $15.93 Exercised (8,000) 11.00 11.00 Granted 60,000 $4.74 17.50 17.50 Cancelled (8,000) 19.75 19.75 -------------------------------------------------------------------- Options outstanding, December 31, 1995 249,500 11.00 - 19.75 16.34 Exercised (28,500) 11.00 - 19.00 11.78 Granted 47,000 $5.64 21.75 21.75 Cancelled (8,000) 17.50 17.50 -------------------------------------------------------------------- Options outstanding, December 31, 1996 260,000 11.00 - 21.75 17.78 -------------------------------------------------------------------- Options exercisable, December 31, 1995 96,000 14.38 December 31, 1996 122,000 16.11 ========================================================================================
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable - ---------------------------------------------------------------------------------------------------------------------------------- Weighted Average Number of Remaining Weighted Number of Weighted Range of Shares Contractual Average Shares Average Exercise Outstanding Life in Years Exercise Price Exercisable Exercise Price Prices - ---------------------------------------------------------------------------------------------------------------------------------- $11.00 10,000 4.42 $11.00 10,000 $11.00 11.75 33,500 5.17 11.75 33,500 11.75 17.50 52,000 8.17 17.50 17.75 35,000 6.92 17.75 23,333 17.75 19.00 82,500 6.17 19.00 55,000 19.00 21.75 47,000 9.50 21.75 - ---------------------------------------------------------------------------------------------------------------------------------- 260,000 7.07 17.78 121,833 16.11 ==================================================================================================================================
77 The two stock option plans are accounted for under APB Opinion No. 25, and therefore no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
In Thousands 1996 1995 - ----------------------------------------- Net Income: As Reported $7,609 $6,826 Pro Forma 7,526 6,786 Primary EPS: As Reported 1.77 1.58 Pro Forma 1.75 1.57
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996 and 1995; risk-free interest rates of 7.11 percent for 1996 and 7.59 percent for 1995; expected dividend yield of 3.3 percent; expected lives of 7 years; expected volatility of 20.8 percent. The Company's defined benefit plan was terminated in 1996 and resulted in a one-time charge of $607,000. The Company has received regulatory approval for the termination and has no further obligation to the plan or its participants. NOTE I - LEASE COMMITMENTS The Company is obligated under various noncancelable operating leases for equipment, buildings and land. At December 31, 1996, future minimum lease payments under leases with initial or remaining terms in excess of one year are as follows: (In thousands of dollars) - -------------------- 1997 $ 1,141 1998 1,019 1999 918 2000 732 2001 729 Thereafter 6,942 ------- $11,481 =======
Rent expense charged to operations was $1,066,000 in 1996, $995,000 in 1995, and $1,033,000 in 1994. 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 $206,000 in 1996, $185,000 in 1995, and $259,000 in 1994. 78 NOTE J - INCOME TAXES The provision for income taxes including tax effects of security transaction gains (1996 - $27,000; 1995 - $175,000; 1994 - $267,000) are as follows:
Year Ended December 31 (In thousands of dollars) 1996 1995 1994 - -------------------------------------------------- Current Federal $4,204 $3,311 $2,313 State 524 403 150 Deferred Federal (372) 46 554 State (44) 5 74 ----------------------- $4,312 $3,765 $3,091 =======================
- -------------------------------------------------------------------------------- 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) 1996 1995 1994 - ------------------------------------------------- Depreciation $(143) $(135) $(260) Allowance for loan losses (93) 2 152 Interest and fee income 51 63 (126) Other real estate owned (24) (4) 736 Tax accounting change 0 26 113 Pension (229) 53 46 Other 22 46 (33) --------------------- $(416) $ 51 $ 628 =====================
79 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) 1996 1995 1994 - ------------------------------------------------------ 34% of income before $4,077 $3,601 $3,154 income taxes Increase (decrease) resulting from the effects of: Tax-exempt interest on obligations of states and political subdivisions (216) (234) (253) State income taxes (164) (139) (76) Dividend exclusion (8) (7) (8) Amortization of 198 108 0 intangibles Other (55) 28 50 ------------------------ Federal tax provision 3,832 3,357 2,867 State tax provision 480 408 224 ------------------------ Applicable income taxes $4,312 $3,765 $3,091 ========================
The net deferred tax assets are comprised of the following:
December 31 (In thousands of dollars) 1996 1995 - -------------------------------------------------------- Allowance for loan losses $ 1,303 $ 1,210 Other real estate owned 39 15 Net unrealized securities losses 880 402 Other 139 0 ----------------- Gross deferred tax assets 2,361 1,627 Depreciation (744) (887) Interest and fee income (383) (332) Other 0 (68) ----------------- Gross deferred tax liabilities (1,127) (1,287) Deferred tax asset valuation 0 0 allowance ----------------- Net deferred tax assets $ 1,234 $ 340 =================
80 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 EQUIVALENTS The carrying amount was used as a reasonable estimate of fair value. SECURITIES The fair value of U.S. Treasury and U.S. Government agency, mutual fund and mortgage backed securities are estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of many state and municipal securities are not readily available through market sources, so fair value estimates are based on quoted market price or prices of similar instruments. LOANS Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, mortgage, credit card, etc. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories. The fair value of loans, except residential mortgage and credit card loans, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. For residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. For credit card loans, cash flows and maturities are based on contractual terms. The fair value estimate for credit card loans is based on the carrying value of existing loans at December 31, 1996 and 1995. 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. 81 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.
1996 1995 ------------------------------------------------- December 31 Carrying Fair Value Carrying Fair Value (In thousands of dollars) Amount Amount - ---------------------------------------------------------------------------- Financial Assets Cash and cash $100,590 $100,590 $115,018 $115,018 equivalents Securities 208,800 209,688 213,638 215,005 Loans, net 467,311 467,865 410,898 415,647 Financial Liabilities Deposits 692,757 693,523 660,967 662,141 Borrowings 45,088 45,088 43,907 43,907 Contingent Liabilities Commitments to extend 0 425 0 335 credit Standby letters of 0 6 0 11 credit - -----------------------------------------------------------------------------
NOTE L - NONINTEREST INCOME AND EXPENSES Details of noninterest income and expenses follow:
Year Ended December 31 1996 1995 1994 (In thousands of dollars) - ---------------------------------------------------------------- Noninterest income Service charges on deposit accounts $ 2,812 $ 2,454 $ 2,033 Trust fees 2,069 1,908 1,722 Other service charges and fees 1,193 1,098 1,028 Brokerage commissions and fees 2,046 1,555 1,190 Other 594 502 502 ------------------------- 8,714 7,517 6,475 Securities gains 72 480 752 ------------------------- $ 8,786 $ 7,997 $ 7,227 ========================= Noninterest expenses Salaries and wages $10,738 $ 9,650 $ 8,682 Pension and other employee benefits 2,531 1,951 1,815 Occupancy 2,304 2,331 2,230 Furniture and equipment 1,781 1,900 2,027 Marketing 1,632 1,367 1,262 Legal and professional fees 844 742 888 FDIC assessments 632 728 1,191 Foreclosed and repossessed asset management and dispositions 165 64 20 Amortization of intangibles 661 418 88 Other 6,229 5,095 4,802 ------------------------- $27,517 $24,246 $23,005 ======= ======= =======
82 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, 1996, an aggregate of 35,236 shares and 52,422 shares, respectively, have been issued as a result of employee participation in these plans. Holders of Class A common stock are entitled to one vote per share on all matters presented to shareholders. Holders of Class B common stock are entitled to 10 votes per share on all matters presented to shareholders. Class A and Class B common stock vote together as a single class on all matters, except as required by law or as provided otherwise in the Company's Articles of Incorporation. Each share of Class B common stock is convertible into one share of Class A common stock at any time prior to a vote of shareholders authorizing a liquidation or dissolution of the Company. The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional dicretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's captial amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantiative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 1996 that the Company meets all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notification from the Company's regulator categorized the Company as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below. There are no conditions or events since that notification that management believes have changed the institution's category. 83
MINIMUM FOR CAPITAL ADEQUACY PURPOSES ---------------------- (IN THOUSANDS OF DOLLARS) AMOUNT RATIO AMOUNT RATIO - -------------------------------------------------------------------------------- AT DECEMBER 31, 1996: Total Capital (to risk- $66,023 15.00% $35,203 > 8.00% weighted assets) - Tier 1 Capital (to 61,737 14.03 17,602 > 4.00% risk-weighted assets) - Tier 1 Capital (to 61,737 8.32 29,692 > 4.00% average assets) - AT DECEMBER 31, 1995: Total Capital (to risk- $59,838 14.86% $32,219 > 8.00% weighted assets) - Tier 1 Capital (to 55,772 13.85 16,109 > 4.00% risk-weighted assets) - Tier 1 Capital (to 55,772 7.93 28,117 > 4.00% average assets) - - --------------------------------------------------------------------------------
MINIMUM TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS ---------------------- (IN THOUSANDS OF DOLLARS) AMOUNT RATIO AT DECEMBER 31, 1996: Total Capital (to risk- $44,004 > 10.00% weighted assets) - Tier 1 Capital (to 26,402 > 6.00% risk-weighted assets) - Tier 1 Capital (to 37,115 > 5.00% average assets) - AT DECEMBER 31, 1995: Total Capital (to risk- $40,274 > 10.00% weighted assets) - Tier 1 Capital (to 24,164 > 6.00% risk-weighted assets) - Tier 1 Capital (to 35,147 > 5.00% average assets) -
The above ratios are comparable for the Company's wholly owned banking subsidiary. 84 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 proforma impact as of and for the year ended December 31, 1994, assuming the acquisition occurred January 1, 1994:
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) FOR THE YEAR ENDED DECEMBER 31, 1994 - -------------------------------------------------------------------------------- Net interest income $27,328 Noninterest income 7,771 Noninterest expense 24,330 Net income 6,910 Earnings per share 1.60
NOTE O - SEACOAST BANKING CORPORATION OF FLORIDA (PARENT COMPANY ONLY) FINANCIAL INFORMATION BALANCE SHEETS
December 31 (In thousands of dollars) 1996 1995 - ------------------------------------------------------ ASSETS Cash $ 10 $ 10 Securities purchased under 4,605 3,772 agreement to resell with subsidiary bank, maturing within 30 days Securities held for sale 1,547 1,596 Investment in subsidiaries 60,613 56,875 Other assets 79 32 ---------------- $66,854 $62,285 ================ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Other liabilities $ 85 $ 85 Shareholders' Equity 66,769 62,200 ---------------- $66,854 $62,285 ================
85 STATEMENTS OF INCOME
Year Ended December 31 (In thousands of dollars) 1996 1995 1994 - --------------------------------------------------------- INCOME Dividends Subsidiary $3,219 $2,668 $2,378 Other 33 30 33 Interest 248 292 235 ---------------------- 3,500 2,990 2,646 EXPENSES 446 408 553 ---------------------- Income before income tax credit and equity in undistributed income of subsidiaries 3,054 2,582 2,093 Income tax credit 69 38 109 ---------------------- Income before equity in undistributed income of subsidiaries 3,123 2,620 2,202 Equity in undistributed income of subsidiaries 4,486 4,206 3,984 ---------------------- NET INCOME $7,609 $6,826 $6,186 ======================
STATEMENTS OF CASH FLOWS
Year Ended December 31 (In thousands of dollars) 1996 1995 1994 - ----------------------------------------------------------------- INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES Interest received $ 253 $ 292 $ 235 Dividends received 3,251 2,701 2,414 Income taxes received 38 109 67 Cash paid to suppliers (446) (419) (563) --------------------------- Net cash provided by operating activities 3,096 2,683 2,153 CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in securities purchased under agreement to resell, maturing in 30 days (833) 1,213 (352) --------------------------- Net cash provided by (used in) investing activity (833) 1,213 (352) CASH FLOWS FROM FINANCING Issuance of common stock - Employee Stock Purchase and Profit Sharing Plan 0 115 181 Exercise of Stock Options 336 (58) 88 Treasury Stock (Purchase) 131 (1,676) 0 Dividends paid (2,730) (2,277) (2,070) --------------------------- Net cash used in financing (2,263) (3,896) (1,801) --------------------------- Net change in cash 0 0 0 Cash at beginning of year 10 10 10 --------------------------- Cash at end of year $ 10 $ 10 $ 10 ===========================
86
RECONCILIATION OF NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES Net income $ 7,609 $ 6,826 $ 6,186 Adjustments to reconcile net income to net cash provided by operating activities: Amortization 5 4 4 Equity in undistributed income (4,486) (4,206) (3,984) of subsidiaries Change in other assets (32) 70 (41) Change in other liabilities 0 (11) (12) --------------------------- Net cash provided by operating activities $ 3,096 $ 2,683 $ 2,153 ===========================
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) 1996 1995 - ----------------------------------------------------------- Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $42,470 $33,502 Standby letters of credit and financial guarantees written: Secured 416 898 Unsecured 136 168 - -----------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary bank evaluates each customer's creditworthiness on a case-by-case basis. 87 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 $42,470,000 outstanding at December 31, 1996, $25,900,000 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, 1996 and 1995 amounted to $872,000 and $1,228,000, respectively. NOTE Q - SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENT OF CASH FLOWS RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
(In thousands of dollars) ----------------------------- Year Ended December 31 1996 1995 1994 - ------------------------------------------------------------------ Net Income $ 7,609 $ 6,826 $ 6,186 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 2,426 2,594 2,717 Provision for loan losses 450 250 145 Provision (credit) for deferred (416) 51 628 taxes Gain on sale of securities (72) (480) (752) Gain on sale of loans 0 0 (45) (Gain) loss on sale and write 107 (18) (192) down of foreclosed assets Loss on disposition of 18 53 96 equipment Change in interest receivable (288) 615 21 Change in interest payable (225) 247 118 Change in prepaid expenses 473 0 112 Change in accrued taxes 111 497 (686) Change in other liabilities (120) 415 84 ----------------------------- Total adjustments 2,464 4,224 2,246 ----------------------------- Net cash provided by operating $10,073 $11,050 $ 8,432 activities ============================== Supplemental disclosure of non cash investing activities: Market value adjustment to securities $(1,528) $ 3,509 $(11,132) Transfer from securities held for sale to securities held for investment 0 16,147 64,885 Transfer from securities held for investment to securities held for sale 0 68,764 0 Transfers from loans to other real estate owned 1,310 945 0 ==================================================================
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 1995. 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. 88 INDEX TO FINANCIAL STATEMENTS Report of Independent Certified Public Accountants -- Arthur Andersen LLP Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements 89 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 90 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 "Election of Directors - General," and "- Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the 1997 Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information set forth under the headings "Election of Directors - Compensation of Executive Officers", "- Salary and Benefits Committee Report", "- Summary Compensation Table", "- Grants of Options/SARs in 1996", Aggregated Options/SAR Exercises in 1996 and 1996 Year-End Option/SAR Values", "- Profit Sharing Plan", "- Employment and Severance Agreements", "Salary and Benefits Committee Interlocks and Insider Participation"; "- Information About the Board of Directors and its Committees", and in the 1997 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information set forth under the headings, "Election of Directors - General," "- Management Stock Ownership," and "Principal Shareholders" in the 1997 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 "Election of Directors - Certain Transactions and Business Relationships" in the 1997 Proxy Statement is incorporated herein by reference. Salary and Benefits Committee Interlocks and Insider Participation" and 91 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 are included in Item 8 of this Annual Report on Form 10-K. Report of Independent Certified Public Accountants Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 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 2 Agreement and Plan of Merger Dated February 19, 1997, by and between the Registrant and Port St. Lucie National Bank Holding Corp. 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 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 92 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, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 28, 1996. 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 Arthur Andersen LLP Exhibit 27 Financial Data Schedule (for SEC use only) b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of 1996. c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. d) Financial Statement Schedules None 93 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. 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 24, 1997 - ------------------------------------------------------------------ Dennis S. Hudson, Jr., Chairman of the Board and Director /s/ Dale M. Hudson March 24, 1997 - ------------------------------------------------------------------ Dale M. Hudson, President, Chief Executive Officer and Director /s/ Dennis S. Hudson, III March 24, 1997 - ------------------------------------------------------------------ Dennis S. Hudson, III Executive Vice President, Chief Operating Officer and Director /s/ William R. Hahl March 24, 1997 - ------------------------------------------------------------------ William R. Hahl, Senior Vice President and Chief Financial Officer - ------------------------------------------------------------------ Jeffrey C. Bruner, Director /s/ John H. Crane March 24, 1997 - ------------------------------------------------------------------ John H. Crane, Director /s/ Evans Crary, Jr. March 24, 1997 - ------------------------------------------------------------------ Evans Crary, Jr., Director /s/ John R. Santarsiero, Jr. March 24, 1997 - ------------------------------------------------------------------ John R. Santarsiero, Jr., Director /s/ Thomas H. Thurlow, Jr. March 24, 1997 - ------------------------------------------------------------------ Thomas H. Thurlow, Jr., Director
94 EXHIBIT INDEX Exhibit 2 Agreement and Plan of Merger Dated February 19, 1997, by and between the Registrant and Port St. Lucie National Bank Holding Corp. 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 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, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 28, 1996. 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 Arthur Andersen LLP Exhibit 27 Financial Data Schedule (for SEC use only) EX-2 2 PLAN OF MERGER 1 EXHIBIT 2 Agreement and Plan of Merger by and between Seacoast Banking Corporation of Florida and Port St. Lucie National Bank Holding Corp. dated February 19, 1997 2 AGREEMENT AND PLAN OF MERGER BY AND BETWEEN SEACOAST BANKING CORPORATION OF FLORIDA AND PORT ST. LUCIE NATIONAL BANK HOLDING CORP. Dated as of February 19, 1997 3 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as of February 19, 1997, by and between SEACOAST BANKING CORPORATION OF FLORIDA ("Seacoast"), a Florida corporation, and PORT ST. LUCIE NATIONAL BANK HOLDING CORP. ("PSHC"), a Florida corporation. PREAMBLE The respective Boards of Directors of PSHC and Seacoast are of the opinion that the transactions described herein are in the best interests of the parties to this Agreement and their respective shareholders. This Agreement provides for the acquisition of PSHC by Seacoast pursuant to the merger of PSHC with and into Seacoast. At the effective time of such merger, the outstanding shares of the capital stock of PSHC shall be converted into the right to receive shares of the common stock of Seacoast (except as provided herein). As a result, shareholders of PSHC shall become shareholders of Seacoast and Seacoast shall continue to conduct the business and operations of PSHC. The transactions described in this Agreement are subject to the approvals of the shareholders of PSHC, the shareholders of Seacoast, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency, and the satisfaction of certain other conditions described in this Agreement. It is the intention of the parties to this Agreement that the Merger for federal income tax purposes shall qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code, and for accounting purposes shall qualify for treatment as a pooling of interests. Certain terms used in this Agreement are defined in Section 11.1 of this Agreement. NOW, THEREFORE, in consideration of the above and the mutual warranties, representations, covenants, and agreements set forth herein, the parties, intending to be legally bound, agree as follows: ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER 1.1 MERGER. Subject to the terms and conditions of this Agreement, at the Effective Time, PSHC shall be merged with and into Seacoast in accordance with the provisions of, and with the effect provided in Sections 607.1101, 607.1103, 607.1105, 607.1106 and 607.1107 of the FBCA (the "Merger"). Seacoast shall be the Surviving Corporation resulting from the Merger and shall continue to be governed by the Laws of the State of Florida. The Merger shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the respective Boards of Directors of PSHC and Seacoast. 1.2 TIME AND PLACE OF CLOSING. The closing of the transactions contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date that the Effective Time occurs (or the immediately preceding day if the Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties, acting through their authorized officers, may mutually agree. The Closing shall be held at such location as may be mutually agreed upon by the Parties. 1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by this Agreement shall become effective on the date and at the time the Articles of Merger reflecting the Merger shall become effective with the Secretary of State of the State of Florida (the "Effective Time"). Subject to the terms and conditions hereof, unless otherwise mutually agreed upon in writing by the authorized officers of each Party, the Parties shall use their reasonable efforts to cause the Effective Time to occur on the first business day following the last to occur of (i) the effective date (including expiration of any applicable waiting period) of the last required Consent of any Regulatory Authority having authority over and approving or exempting the Merger, and (ii) the 4 date on which the shareholders of PSHC and Seacoast approve this Agreement to the extent such approval is required by applicable Law; or such later date within 30 days thereof as may be mutually agreed upon by Seacoast and PSHC. 1.4 BANK MERGER. After consummation of the Merger, PSN Bank shall (at Seacoast's discretion) be merged with and into First National (the "Bank Merger") in accordance with the provisions of and with the effect provided in 12 U.S.C. 215a on terms and subject to the provisions of the Bank Plan of Merger ("Bank Plan"), attached hereto as Exhibit 1. The Bank Plan shall be executed and the transactions contemplated therein shall be consummated at such time as Seacoast directs. PSHC shall vote all shares of capital stock of PSN Bank in favor of the Bank Plan and the Bank Merger provided therein. ARTICLE 2 TERMS OF MERGER 2.1 CHARTER. The Articles of Incorporation of Seacoast in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until duly amended or repealed. 2.2 BYLAWS. The Bylaws of Seacoast in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until duly amended or repealed. 2.3 DIRECTORS AND OFFICERS. The directors of Seacoast in office immediately prior to the Effective Time, together with two such additional persons from PSHC's Board of Directors as may thereafter be elected, shall serve as the directors of the Surviving Corporation from and after the Effective Time in accordance with the Bylaws of the Surviving Corporation. The officers of Seacoast in office immediately prior to the Effective Time, together with such additional persons as may thereafter be elected, shall serve as the officers of the Surviving Corporation from and after the Effective Time in accordance with the Bylaws of the Surviving Corporation. ARTICLE 3 MANNER OF CONVERTING SHARES 3.1 CONVERSION OF SHARES. Subject to the provisions of this Article 3, at the Effective Time, by virtue of the Merger and without any action on the part of Seacoast, PSHC, or the shareholders of either of the foregoing, the shares of the constituent corporations shall be converted as follows: (a) Each share of capital stock of Seacoast issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time. (b) Each share of PSHC Common Stock, excluding shares held by any PSHC Entity or any Seacoast Entity, in each case other than in a fiduciary capacity or as a result of debts previously contracted, and excluding shares held by shareholders who perfect their statutory dissenters' rights as provided in Section 3.4 issued and outstanding immediately prior to the Effective Time shall cease to be outstanding and shall be converted into and exchanged for the right to receive shares of Seacoast Common Stock in an amount equal to the Purchase Price Per Share divided by the Seacoast Stock Price (the "Exchange Ratio"); provided, that, in the event that the Purchase Price Per Share shall be less than $24.62 (the "Lower Threshold Price") then PSHC shall have the right to terminate the Agreement. (c) Each issued and outstanding PSHC Warrant shall be converted into and exchanged for shares of Seacoast Common Stock based upon the exchange ratio (the "Warrant Exchange Ratio") obtained by dividing (i) the difference between the Purchase Price Per Share and $8.26 by (ii) the Seacoast Stock Price. 5 3.2 ANTI-DILUTION PROVISIONS. In the event Seacoast changes the number of shares of Seacoast Common Stock issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, or similar recapitalization with respect to such stock and the record date therefor (in the case of a stock dividend) or the effective date thereof (in the case of a stock split or similar recapitalization for which a record date is not established) shall be prior to the Effective Time, the Exchange Ratio and the Warrant Exchange Ratio shall be proportionately adjusted. In the event Seacoast changes the number of shares of Seacoast Common Stock issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, or similar recapitalization with respect to such stock and the record date therefor (in the case of a stock dividend) or the effective date thereof (in the case of a stock split or similar recapitalization for which a record date is not established) shall be after the Exchange Ratio and the Warrant Exchange Ratio have been determined in accordance with Sections 3.1(b) and (c) and prior to the Effective Time, the Exchange Ratio and Warrant Exchange Ratio shall be proportionately adjusted. In the event Seacoast changes the number of shares of Seacoast Common Stock issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, or similar recapitalization with respect to such stock and the record date therefor (in the case of a stock dividend) or the effective date thereof (in the case of a stock split or similar recapitalization for which a record date is not established) shall be prior to date on which the Exchange Ratio and the Warrant Exchange Ratio is determined in accordance with Sections 3.1(b) and (c), (i) the Threshold Prices shall be adjusted appropriately, and (ii) if necessary, the anticipated Effective Time shall be postponed for an appropriate period of time agreed upon by the parties in order for the Seacoast Stock Price to reflect the market effect of such stock split, stock dividend, or similar recapitalization. 3.3 SHARES HELD BY PSHC OR SEACOAST. Each of the shares of PSHC Common Stock held by any PSHC Entity or by any Seacoast Entity, in each case other than in a fiduciary capacity or as a result of debts previously contracted, shall be canceled and retired at the Effective Time and no consideration shall be issued in exchange therefor. 3.4 DISSENTING SHAREHOLDERS. Any holder of shares of PSHC Common Stock who perfects his dissenters' rights in accordance with and as contemplated by Section 607.1301 et seq. of the FBCA shall be entitled to receive the value of such shares in cash as determined pursuant to such provision of Law; provided, that no such payment shall be made to any dissenting shareholder unless and until such dissenting shareholder has complied with the applicable provisions of the FBCA and surrendered to PSHC the certificate or certificates representing the shares for which payment is being made. In the event that after the Effective Time a dissenting shareholder of PSHC fails to perfect, or effectively withdraws or loses, his right to appraisal and of payment for his shares subject to Seacoast's consent in its sole discretion, Seacoast shall issue and deliver the consideration to which such holder of shares of PSHC Common Stock is entitled under this Article 3 (without interest) upon surrender by such holder of the certificate or certificates representing shares of PSHC Common Stock held by him. 3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this Agreement, each holder of shares of PSHC Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Seacoast Common Stock (after taking into account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of Seacoast Common Stock multiplied by the Seacoast Stock Price. No such holder will be entitled to dividends, voting rights, or any other rights as a shareholder in respect of any fractional shares. 3.6 CONVERSION OF STOCK OPTIONS; RESTRICTED STOCK. (a) At the Effective Time, each option or other Equity Right (excluding PSHC Warrants) to purchase shares of PSHC Common Stock pursuant to stock options or stock appreciation rights ("PSHC Options") granted by PSHC under the PSHC Stock Plan[s], which are outstanding at the Effective Time, whether or not exercisable, shall be converted into and become rights with respect to Seacoast Common Stock, and Seacoast shall assume each PSHC Option, in accordance with the terms of the PSHC Stock Plan and stock option agreement by which it is evidenced, except that from and after the Effective Time, (i) Seacoast and its Compensation Committee shall be substituted for PSHC and the Committee of PSHC's Board of Directors 6 (including, if applicable, the entire Board of Directors of PSHC) administering such PSHC Stock Plan, (ii) each PSHC Option assumed by Seacoast may be exercised solely for shares of Seacoast Common Stock (or cash, if so provided under the terms of such PSHC Option), (iii) the number of shares of Seacoast Common Stock subject to such PSHC Option shall be equal to the number of shares of PSHC Common Stock subject to such PSHC Option immediately prior to the Effective Time multiplied by the Exchange Ratio, and (iv) the per share exercise price under each such PSHC Option shall be adjusted by dividing the per share exercise price under each such PSHC Option by the Exchange Ratio and rounding up to the nearest cent. Notwithstanding the provisions of clause (iii) of the preceding sentence, Seacoast shall not be obligated to issue any fraction of a share of Seacoast Common Stock upon exercise of PSHC Options and any fraction of a share of Seacoast Common Stock that otherwise would be subject to a converted PSHC Option shall represent the right to receive a cash payment upon exercise of such converted PSHC Option equal to the product of such fraction and the difference between the market value of one share of Seacoast Common Stock at the time of exercise of such Option and the per share exercise price of such Option. The market value of one share of Seacoast Common Stock at the time of exercise of an Option shall be the last sale price of such common stock on the Nasdaq National Market (as reported by The Wall Street Journal or, if not reported thereby, any other authoritative source selected by Seacoast) on the last trading day preceding the date of exercise. In addition, notwithstanding the provisions of clauses (iii) and (iv) of the first sentence of this Section 3.6(a), each PSHC Option which is an "incentive stock option" shall be adjusted as required by Section 424 of the Internal Revenue Code, and the regulations promulgated thereunder, so as not to constitute a modification, extension or renewal of the option, within the meaning of Section 424(h) of the Internal Revenue Code. Each of PSHC and Seacoast agrees to take all necessary steps to effectuate the foregoing provisions of this Section 3.6, including using its reasonable efforts to obtain from each holder of a PSHC Option any Consent or Contract that may be deemed necessary or advisable in order to effect the transactions contemplated by this Section 3.6. Anything in this Agreement to the contrary notwithstanding, Seacoast shall have the right, in its sole discretion, not to deliver the consideration provided in this Section 3.6 to a former holder of a PSHC Option who has not delivered such Consent or Contract. (b) As soon as practicable after the Effective Time, Seacoast shall deliver to the participants in each PSHC Stock Plan an appropriate notice setting forth such participant's rights pursuant thereto and the grants subject to such PSHC Stock Plan shall continue in effect on the same terms and conditions (subject to the adjustments required by Section 3.6(a) after giving effect to the Merger), and Seacoast shall comply with the terms of each PSHC Stock Plan to ensure, to the extent required by, and subject to the provisions of, such PSHC Stock Plan, that PSHC Options which qualified as incentive stock options prior to the Effective Time continue to qualify as incentive stock options after the Effective Time. At or prior to the Effective Time, Seacoast shall take all corporate action necessary to reserve for issuance sufficient shares of Seacoast Common Stock for delivery upon exercise of PSHC Options assumed by it in accordance with this Section 3.6. As soon as practicable after the Effective Time, Seacoast shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), with respect to the shares of Seacoast Common Stock subject to such options and shall use its reasonable efforts to maintain the effectiveness of such registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding. With respect to those individuals who subsequent to the Merger will be subject to the reporting requirements under Section 16(a) of the Exchange Act, where applicable, Seacoast shall administer the PSHC Stock Plan assumed pursuant to this Section 3.6 in a manner that complies with Rule 16b-3 promulgated under the Exchange Act to the extent the PSHC Stock Plan complied with such rule prior to the Effective Time. (c) All contractual restrictions or limitations on transfer with respect to PSHC Common Stock awarded under the PSHC Stock Plans or any other plan, program, Contract or arrangement of any PSHC Entity, to the extent that such restrictions or limitations shall not have already lapsed (whether as a result of the Merger or otherwise), and except as otherwise expressly provided in such plan, program, Contract or arrangement, shall remain in full force and effect with respect to shares of Seacoast Common Stock into which such restricted stock is converted pursuant to Section 3.1. 7 ARTICLE 4 EXCHANGE OF SHARES 4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, Seacoast and PSHC shall cause the exchange agent selected by Seacoast (the "Exchange Agent") to mail to each holder of record of a certificate or certificates which represented shares of PSHC Common Stock immediately prior to the Effective Time (the "Certificates") appropriate transmittal materials and instructions (which shall specify that delivery shall be effected, and risk of loss and title to such Certificates shall pass, only upon proper delivery of such Certificates to the Exchange Agent). The Certificate or Certificates of PSHC Common Stock so delivered shall be duly endorsed as the Exchange Agent may require. In the event of a transfer of ownership of shares of PSHC Common Stock represented by Certificates that are not registered in the transfer records of PSHC, the consideration provided in Section 3.1 may be issued to a transferee if the Certificates representing such shares are delivered to the Exchange Agent, accompanied by all documents required to evidence such transfer and by evidence satisfactory to the Exchange Agent that any applicable stock transfer taxes have been paid. If any Certificate shall have been lost, stolen, mislaid or destroyed, upon receipt of (i) an affidavit of that fact from the holder claiming such Certificate to be lost, mislaid, stolen or destroyed, (ii) such bond, security or indemnity as Seacoast and the Exchange Agent may reasonably require and (iii) any other documents necessary to evidence and effect the bona fide exchange thereof, the Exchange Agent shall issue to such holder the consideration into which the shares represented by such lost, stolen, mislaid or destroyed Certificate shall have been converted. The Exchange Agent may establish such other reasonable and customary rules and procedures in connection with its duties as it may deem appropriate. After the Effective Time, each holder of shares of PSHC Common Stock (other than shares to be canceled pursuant to Section 3.3 or as to which statutory dissenters' rights have been perfected as provided in Section 3.4) issued and outstanding at the Effective Time shall surrender the Certificate or Certificates representing such shares to the Exchange Agent and shall promptly upon surrender thereof receive in exchange therefor the consideration provided in Section 3.1, together with all undelivered dividends or distributions in respect of such shares (without interest thereon) pursuant to Section 4.2. To the extent required by Section 3.5, each holder of shares of PSHC Common Stock issued and outstanding at the Effective Time also shall receive, upon surrender of the Certificate or Certificates, cash in lieu of any fractional share of Seacoast Common Stock to which such holder may be otherwise entitled (without interest). Seacoast shall not be obligated to deliver the consideration to which any former holder of PSHC Common Stock is entitled as a result of the Merger until such holder surrenders such holder's Certificate or Certificates for exchange as provided in this Section 4.1. Any other provision of this Agreement notwithstanding, neither Seacoast nor the Exchange Agent shall be liable to a holder of PSHC Common Stock for any amounts paid or property delivered in good faith to a public official pursuant to any applicable abandoned property, escheat or similar Law. Adoption of this Agreement by the shareholders of PSHC shall constitute ratification of the appointment of the Exchange Agent. 4.2 RIGHTS OF FORMER PSHC SHAREHOLDERS. At the Effective Time, the stock transfer books of PSHC shall be closed as to holders of PSHC Common Stock immediately prior to the Effective Time and no transfer of PSHC Common Stock by any such holder shall thereafter be made or recognized. Until surrendered for exchange in accordance with the provisions of Section 4.1, each Certificate theretofore representing shares of PSHC Common Stock (other than shares to be canceled pursuant to Sections 3.3 and 3.4) shall from and after the Effective Time represent for all purposes only the right to receive the consideration provided in Sections 3.1 and 3.5 in exchange therefor, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time which have been declared or made by PSHC in respect of such shares of PSHC Common Stock in accordance with the terms of this Agreement and which remain unpaid at the Effective Time. Whenever a dividend or other distribution is declared by Seacoast on the Seacoast Common Stock, the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all shares of Seacoast Common Stock issuable pursuant to this Agreement, but beginning 45 days after the Effective Time, no dividend or other distribution payable to the holders of record of Seacoast Common Stock as of any time subsequent to the Effective Time shall be delivered to the holder of any Certificate until such holder surrenders such Certificate for exchange as provided in Section 4.1. However, upon surrender of such Certificate, both the Seacoast Common Stock certificate (together with all such undelivered 8 dividends or other distributions, without interest) and any undelivered dividends and cash payments payable hereunder (without interest) shall be delivered and paid with respect to each share represented by such Certificate. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PSHC PSHC hereby represents and warrants to Seacoast as follows: 5.1 ORGANIZATION, STANDING, AND POWER. PSHC is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Florida, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its Assets. PSHC is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect. The minute books and other organizational documents and corporate records for PSHC have been made available to Seacoast for its review and, except as disclosed in Section 5.1 of the PSHC Disclosure Memorandum, are true and complete in all material respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto and all proceedings of the Board of Directors and shareholders thereof. 5.2 AUTHORITY OF PSHC; NO BREACH BY AGREEMENT. (a) PSHC has the corporate power and authority necessary to execute, deliver, and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of PSHC, subject to the approval of this Agreement by the holders of a majority of the outstanding shares of PSHC Common Stock, which is the only shareholder vote required for approval of this Agreement and consummation of the Merger by PSHC. Subject to such requisite shareholder approval, this Agreement represents a legal, valid, and binding obligation of PSHC, enforceable against PSHC in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). (b) Neither the execution and delivery of this Agreement by PSHC, nor the consummation by PSHC of the transactions contemplated hereby, nor compliance by PSHC with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of PSHC's Articles of Incorporation or Bylaws or the certificate or articles of incorporation or bylaws of any PSHC Subsidiary or any resolution adopted by the board of directors or the shareholders of any PSHC Entity, or (ii) except as disclosed in Section 5.2 of the PSHC Disclosure Memorandum, constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any PSHC Entity under, any Contract or Permit of any PSHC Entity, where such Default or Lien, or any failure to obtain such Consent, is reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect or where such event would cause a breach hereof or a Default hereunder, or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any PSHC Entity or any of their respective material Assets (including any Seacoast Entity or any PSHC Entity becoming subject to or liable for the payment of any Tax or any of the Assets owned by any Seacoast Entity or any PSHC Entity being reassessed or revalued by any Taxing authority). (c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the NASD, and other than Consents required 9 from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, or under the HSR Act, and other than Consents, filings, or notifications which, if not obtained or made, are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by PSHC of the Merger and the other transactions contemplated in this Agreement. 5.3 CAPITAL STOCK. (a) The authorized capital stock of PSHC consists of (i) 10,000,000 shares of PSHC Common Stock, of which 744,655 shares are issued and outstanding as of the date of this Agreement and assuming the issue and exercise of all issued and outstanding warrants and options to purchase 201,298.625 shares of PSHC Common Stock, not more than 945,954 shares will be issued and outstanding at the Effective Time, and (ii) no shares of preferred stock are authorized, issued or outstanding. All of the issued and outstanding shares of capital stock of PSHC are duly and validly issued and outstanding and are fully paid and nonassessable under the FBCA. None of the outstanding shares of capital stock of PSHC has been issued in violation of any preemptive rights of the current or past shareholders of PSHC. (b) Except as set forth in Section 5.3(a), or as disclosed in Section 5.3(b) of the PSHC Disclosure Memorandum, there are no shares of capital stock or other equity securities of PSHC outstanding and no outstanding Equity Rights relating to the capital stock of PSHC. 5.4 PSHC SUBSIDIARIES. PSHC has disclosed in Section 5.4 of the PSHC Disclosure Memorandum all of the PSHC Subsidiaries that are corporations (identifying its jurisdiction of incorporation, each jurisdiction in which it is qualified and/or licensed to transact business, and the number of shares owned and percentage ownership interest represented by such share ownership) and all of the PSHC Subsidiaries that are general or limited partnerships, limited liability companies, trusts or other non-corporate entities (identifying the Law under which such entity is organized, each jurisdiction in which it is qualified and/or licensed to transact business, the type of entity and the amount and nature of the ownership interest therein). Except as disclosed in Section 5.4 of the PSHC Disclosure Memorandum, PSHC or one of its wholly-owned Subsidiaries owns all of the issued and outstanding shares of capital stock (or other equity interests) of each PSHC Subsidiary. No capital stock (or other equity interest) of any PSHC Subsidiary is or may become required to be issued (other than to another PSHC Entity) by reason of any Equity Rights, and there are no Contracts by which any PSHC Subsidiary is bound to issue (other than to another PSHC Entity) additional shares of its capital stock (or other equity interests) or Equity Rights or by which any PSHC Entity is or may be bound to transfer any shares of the capital stock (or other equity interests) of any PSHC Subsidiary (other than to another PSHC Entity). There are no Contracts relating to the rights of any PSHC Entity to vote or to dispose of any shares of the capital stock (or other equity interests) of any PSHC Subsidiary. All of the shares of capital stock (or other equity interests) of each PSHC Subsidiary held by a PSHC Entity are fully paid and (except pursuant to 12 USC Section 55 in the case of national banks and comparable, applicable state Law, if any, in the case of state depository institutions) nonassessable under the applicable corporation Law of the jurisdiction in which such Subsidiary is incorporated or organized and are owned by the PSHC Entity free and clear of any Lien. Except as disclosed in Section 5.4 of the PSHC Disclosure Memorandum, each PSHC Subsidiary is either a bank, a savings association, or a corporation, and each such Subsidiary is duly organized, validly existing, and (as to corporations) in good standing under the Laws of the jurisdiction in which it is incorporated or organized, and has the corporate power and authority necessary for it to own, lease, and operate its Assets and to carry on its business as now conducted. Each PSHC Subsidiary is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect. Each PSHC Subsidiary that is a depository institution is an "insured institution" as defined in the Federal Deposit Insurance Act and applicable regulations thereunder, and the deposits in which are insured by the Bank Insurance Fund. The minute books, and other organizational and corporate documents for each PSHC Subsidiary have been made 10 available to Seacoast for its review, and, except as disclosed in Section 5.4 of the PSHC Disclosure Memorandum, are true and complete in all material respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto and all proceedings of the Board of Directors, all committees of the Board of Directors and shareholders thereof. 5.5 SEC FILINGS; FINANCIAL STATEMENTS. (a) PSHC has timely filed and made available to Seacoast, all SEC Documents required to be filed by PSHC since December 31, 1992 (the "PSHC SEC Reports"). The PSHC SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Laws and other applicable Laws and (ii) did not, at the time they were filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such PSHC SEC Reports or necessary in order to make the statements in such PSHC SEC Reports, in light of the circumstances under which they were made, not misleading. No PSHC Subsidiary is required to file any SEC Documents. (b) Each of the PSHC Financial Statements (including, in each case, any related notes) contained in the PSHC SEC Reports, including any PSHC SEC Reports filed after the date of this Agreement until the Effective Time, complied as to form in all material respects with the applicable published rules and regulations of the SEC with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly presented in all material respects the consolidated financial position of PSHC and its Subsidiaries as at the respective dates and the consolidated results of operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount or effect. 5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No PSHC Entity has any Liabilities that are reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect, except Liabilities which are accrued or reserved against in the consolidated balance sheets of PSHC as of December 31, 1995 and September 30, 1996, included in the PSHC Financial Statements delivered prior to the date of this Agreement or reflected in the notes thereto. Except as set forth in Section 5.6 of the PSHC Disclosure Memorandum, no PSHC Entity has incurred or paid any Liability since September 30, 1996, except for such Liabilities incurred or paid (i) in the ordinary course of business consistent with past business practice and which are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect or (ii) in connection with the transactions contemplated by this Agreement. 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995, except as disclosed in the PSHC Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 5.7 of the PSHC Disclosure Memorandum, (i) there have been no events, changes, or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect, and (ii) the PSHC Entities have not taken any action, or failed to take any action, prior to the date of this Agreement, which action or failure, if taken after the date of this Agreement, would represent or result in a material breach or violation of any of the covenants and agreements of PSHC provided in Article 7. 5.8 TAX MATTERS. (a) All Tax Returns required to be filed by or on behalf of any of the PSHC Entities have been timely filed or requests for extensions have been timely filed, granted, and have not expired for periods ended on or before December 31, 1995, and on or before the date of the most recent fiscal year end immediately preceding the Effective Time, except to the extent that all such failures to file, taken together, are not reasonably likely to have a PSHC Material Adverse Effect, and all Tax Returns filed are complete and accurate in all material respects. All Taxes shown on filed Tax Returns have been paid. As of the date of this Agreement, there is no 11 audit examination, deficiency, or refund Litigation with respect to any Taxes, except as reserved against in the PSHC Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 5.8 of the PSHC Disclosure Memorandum. PSHC's federal income Tax Returns have not been audited by the IRS. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded Litigation have been paid. There are no Liens with respect to Taxes upon any of the Assets of the PSHC Entities, except for any such Liens which are not reasonably likely to have a PSHC Material Adverse Effect. (b) None of the PSHC Entities has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due (excluding such statutes that relate to years currently under examination by the Internal Revenue Service or other applicable taxing authorities) that is currently in effect. (c) The provision for any Taxes due or to become due for any of the PSHC Entities for the period or periods through and including the date of the respective PSHC Financial Statements that has been made and is reflected on such PSHC Financial Statements is sufficient to cover all such Taxes. (d) Deferred Taxes of the PSHC Entities have been provided for in accordance with GAAP. (e) Except as disclosed in Section 5.8(e) of the PSHC Disclosure Memorandum, none of the PSHC Entities is a party to any Tax allocation or Tax sharing agreement and none of the PSHC Entities has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was PSHC) has any Liability for Taxes of any Person (other than PSHC and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law) as a transferee or successor or by Contract or otherwise. (f) Except as disclosed in Section 5.8(f) of the PSHC Disclosure Memorandum, each of the PSHC Entities is in compliance with, and its records contain all information and documents (including properly completed IRS Forms W-9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state, and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code, except for such instances of noncompliance and such omissions as are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect. (g) Except as disclosed in Section 5.8 of the PSHC Disclosure Memorandum, none of the PSHC Entities has made any payments, is obligated to make any payments, or is a party to any Contract that could obligate it to make any payments that would be disallowed as a deduction under Section 280G or 162(m) of the Internal Revenue Code. (h) There has not been an ownership change, as defined in Internal Revenue Code Section 382(g), of the PSHC Entities that occurred during or after any Taxable Period in which the PSHC Entities incurred a net operating loss that carries over to any Taxable Period ending after December 31, 1995. (i) No PSHC Entity has or has had in any foreign country a permanent establishment, as defined in any applicable tax treaty or convention between the United States and such foreign country. 5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. In the opinion of management of PSHC, the allowances for possible loan, credit or securities losses (collectively, the "Allowance") shown on the consolidated balance sheets of PSHC included in the most recent PSHC Financial Statements dated prior to the date of this Agreement was, and the Allowance shown on the consolidated balance sheets of PSHC included in the PSHC Financial Statements as of dates subsequent to the execution of this Agreement will be, as of the dates thereof, adequate (within the meaning of GAAP and applicable regulatory requirements or guidelines) to provide for all 12 known or reasonably anticipated losses relating to or inherent in the loan, lease and securities portfolios (including accrued interest receivables) of the PSHC Entities and other extensions of credit (including letters of credit and commitments to make loans or extend credit) by the PSHC Entities as of the dates thereof. 5.10 ASSETS. (a) Except as disclosed in Section 5.10 of the PSHC Disclosure Memorandum or as disclosed or reserved against in the PSHC Financial Statements delivered prior to the date of this Agreement, the PSHC Entities have good and marketable title, free and clear of all Liens, to all of their respective Assets, except for any such Liens or other defects of title which are not reasonably likely to have a PSHC Material Adverse Effect. Except as set forth in Section 5.10 of the PSHC Disclosure Memorandum, all tangible properties used in the businesses of the PSHC Entities are in good condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent with PSHC's past practices. (b) All Assets which are material to PSHC's business on a consolidated basis, held under leases or subleases by any of the PSHC Entities, are held under valid Contracts enforceable as to the PSHC Entity and to the Knowledge of PSHC as to the counter-party to such Contracts in accordance with their respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought), and each such Contract is in full force and effect. (c) The PSHC Entities currently maintain insurance similar in amounts, scope, and coverage to that maintained by other peer banking organizations. None of the PSHC Entities has received notice from any insurance carrier that (i) any policy of insurance will be canceled or that coverage thereunder will be reduced or eliminated, or (ii) premium costs with respect to such policies of insurance will be substantially increased. There are presently no claims for amounts exceeding in any individual case $5,000, or in the aggregate $100,000, pending under such policies of insurance and no notices of claims in excess of such amounts have been given by any PSHC Entity under such policies. (d) The Assets of the PSHC Entities include all Assets required to operate the business of the PSHC Entities as presently conducted. 5.11 INTELLECTUAL PROPERTY. Except as disclosed in Section 5.11 of the PSHC Disclosure Memorandum, each PSHC Entity owns or has a license to use all of the Intellectual Property used by such PSHC Entity in the course of its business. Each PSHC Entity is the owner of or has a license to any Intellectual Property sold or licensed to a third party by such PSHC Entity in connection with such PSHC Entity's business operations, and such PSHC Entity has the right to convey by sale or license any Intellectual Property so conveyed. No PSHC Entity is in Default under any of its Intellectual Property licenses. No proceedings have been instituted, or are pending or to the Knowledge of PSHC threatened, which challenge the rights of any PSHC Entity with respect to Intellectual Property used, sold or licensed by such PSHC Entity in the course of its business, nor has any person claimed or alleged any rights to such Intellectual Property. The conduct of the business of the PSHC Entities does not infringe any Intellectual Property of any other person. Except as disclosed in Section 5.11 of the PSHC Disclosure Memorandum, no PSHC Entity is obligated to pay any recurring royalties to any Person with respect to any such Intellectual Property. Except as disclosed in Section 5.11 of the PSHC Disclosure Memorandum, every officer, director, or employee of any PSHC Entity is a party to a Contract which requires such officer, director or employee to assign any interest in any Intellectual Property to a PSHC Entity and to keep confidential any trade secrets, proprietary data, customer information, or other business information of a PSHC Entity, and no such officer, director or employee is party to any 13 Contract with any Person other than a PSHC Entity which requires such officer, director or employee to assign any interest in any Intellectual Property to any Person other than a PSHC Entity or to keep confidential any trade secrets, proprietary data, customer information, or other business information of any Person other than a PSHC Entity. Except as disclosed in Section 5.11 of the PSHC Disclosure Memorandum, no officer, director or to the Knowledge of PSHC any employee of any PSHC Entity is party to any Contract which restricts or prohibits such officer, director or employee from engaging in activities competitive with any Person, including any PSHC Entity. 5.12 ENVIRONMENTAL MATTERS. (a) To the Knowledge of PSHC, each PSHC Entity, its Participation Facilities, and its Operating Properties are, and have been, in compliance with all Environmental Laws, except for violations which are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect. (b) There is no Litigation pending or, to the Knowledge of PSHC, threatened before any court, governmental agency, or authority or other forum in which any PSHC Entity or any of its Operating Properties or Participation Facilities (or PSHC in respect of such Operating Property or Participation Facility) has been or, with respect to threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the release, discharge, spillage, or disposal into the environment of any Hazardous Material, whether or not occurring at, on, under, adjacent to, or affecting (or potentially affecting) a site owned, leased, or operated by any PSHC Entity or any of its Operating Properties or Participation Facilities, nor is there any reasonable basis for any Litigation of a type described in this sentence. (c) During the period of (i) any PSHC Entity's ownership or operation of any of their respective current properties, (ii) any PSHC Entity's participation in the management of any Participation Facility, or (iii) any PSHC Entity's holding of a security interest in a Operating Property, there have been no releases, discharges, spillages, or disposals of Hazardous Material in, on, under, adjacent to, or affecting (or potentially affecting) such properties; provided that with respect to the period set forth in (iii) above, this representation shall be made to the Knowledge of PSHC. Prior to the period of (i) any PSHC Entity's ownership or operation of any of their respective current properties, (ii) any PSHC Entity's participation in the management of any Participation Facility, or (iii) any PSHC Entity's holding of a security interest in a Operating Property, to the Knowledge of PSHC, there were no releases, discharges, spillages, or disposals of Hazardous Material in, on, under, or affecting any such property, Participation Facility or Operating Property. 5.13 COMPLIANCE WITH LAWS. PSHC is duly registered as a bank holding company under the BHC Act. Each PSHC Entity has in effect all Permits necessary for it to own, lease, or operate its material Assets and to carry on its business as now conducted, except for those Permits the absence of which are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect, and there has occurred no Default under any such Permit, other than Defaults which are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect. Except as disclosed in Section 5.13 of the PSHC Disclosure Memorandum, none of the PSHC Entities: (a) is in Default under any of the provisions of its Articles of Incorporation or Bylaws (or other governing instruments); (b) is in Default under any Laws, Orders, or Permits applicable to its business or employees conducting its business, except for Defaults which are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect; or (c) since January 1, 1993, has received any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that any PSHC Entity is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, (ii) threatening to revoke any Permits, or (iii) requiring any PSHC Entity to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment, or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business or in any manner relates to its capital adequacy, its credit or reserve policies, its management, or the payment of dividends. 14 Copies of all material reports, correspondence, notices and other documents relating to any inspection, audit, monitoring or other form of review or enforcement action by a Regulatory Authority have been made available to Seacoast. 5.14 LABOR RELATIONS. No PSHC Entity is the subject of any Litigation asserting that it or any other PSHC Entity has committed an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state law) or seeking to compel it or any other PSHC Entity to bargain with any labor organization as to wages or conditions of employment, nor is any PSHC Entity party to any collective bargaining agreement, nor is there any strike or other labor dispute involving any PSHC Entity, pending or to the Knowledge of PSHC is (i) any such strike or dispute threatened or (ii) there any activity involving any PSHC Entity's employees seeking to certify a collective bargaining unit or engaging in any other organization activity. 5.15 EMPLOYEE BENEFIT PLANS. (a) PSHC has disclosed in Section 5.15 of the PSHC Disclosure Memorandum, and has delivered or made available to Seacoast prior to the execution of this Agreement copies in each case of, all pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus, or other incentive plan, all other written employee programs, arrangements, or agreements, all medical, vision, dental, or other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including "employee benefit plans" as that term is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or in part by, or contributed to by any PSHC Entity or ERISA Affiliate thereof for the benefit of employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries and under which employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the "PSHC Benefit Plans"). Any of the PSHC Benefit Plans which is an "employee pension benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to herein as a "PSHC ERISA Plan." Each PSHC ERISA Plan which is also a "defined benefit plan" (as defined in Section 414(j) of the Internal Revenue Code) is referred to herein as a "PSHC Pension Plan." No PSHC Pension Plan is or has been a multiemployer plan within the meaning of Section 3(37) of ERISA. (b) All PSHC Benefit Plans are in compliance with the applicable terms of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or violation of which are reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect. Each PSHC ERISA Plan which is intended to be qualified under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service, and PSHC is not aware of any circumstances likely to result in revocation of any such favorable determination letter. No PSHC Entity has engaged in a transaction with respect to any PSHC Benefit Plan that, assuming the taxable period of such transaction expired as of the date hereof, would subject any PSHC Entity to a Tax imposed by either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA. (c) No PSHC Pension Plan has any "unfunded current liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of the assets of any such plan exceeds the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial factors that would apply if the plan terminated in accordance with all applicable legal requirements. Since the date of the most recent actuarial valuation, there has been (i) no material change in the financial position of any PSHC Pension Plan, (ii) no change in the actuarial assumptions with respect to any PSHC Pension Plan, and (iii) no increase in benefits under any PSHC Pension Plan as a result of plan amendments or changes in applicable Law which is reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect or materially adversely affect the funding status of any such plan. Neither any PSHC Pension Plan nor any "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any PSHC Entity, or the single-employer plan of any entity which is considered one employer with PSHC under Section 4001 of ERISA or Section 414 of the Internal Revenue Code or Section 302 of ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding deficiency" within the meaning of Section 412 of the Internal Revenue Code or Section 302 of ERISA. No PSHC Entity has provided, or is required to provide, security 15 to a PSHC Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code. (d) Within the six-year period preceding the Effective Time, no Liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by any PSHC Entity with respect to any ongoing, frozen, or terminated single-employer plan or the single-employer plan of any ERISA Affiliate. No PSHC Entity has incurred any withdrawal Liability with respect to a multiemployer plan under Subtitle B of Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate. No notice of a "reportable event," within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any PSHC Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof. (e) Except as disclosed in Section 5.15 of the PSHC Disclosure Memorandum, no PSHC Entity has any Liability for retiree health and life benefits under any of the PSHC Benefit Plans and there are no restrictions on the rights of such PSHC Entity to amend or terminate any such retiree health or benefit Plan without incurring any Liability thereunder. (f) Except as disclosed in Section 5.15 of the PSHC Disclosure Memorandum, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment (including severance, unemployment compensation, golden parachute, or otherwise) becoming due to any director or any employee of any PSHC Entity from any PSHC Entity under any PSHC Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any PSHC Benefit Plan, or (iii) result in any acceleration of the time of payment or vesting of any such benefit. (g) The actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) of employees and former employees of any PSHC Entity and their respective beneficiaries, other than entitlements accrued pursuant to funded retirement plans subject to the provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA, have been fully reflected on the PSHC Financial Statements to the extent required by and in accordance with GAAP. (h) PSHC (including its subsidiaries and successors) may satisfy its current and future liabilities under the Port St. Lucie National Bank Deferred Compensation Plan (the "Deferred Plan") by making, as soon as administratively feasible after the date on which it terminates the Deferred Plan, single lump sum payments (which in the aggregate are equal to or less than the fair market value of the life insurance policy or policies purchased to fund the benefits under the Deferred Plan) to each participant or his beneficiary, which payments are equal to each such participant's respective accrued benefit under the Deferred Plan as of the date on which the Deferred Plan is terminated. In the case of a life insurance policy held in the trust, "fair market value" shall mean the net cash surrender value of the policy, after deducting any cancellation, liquidation or surrender charges or fees. There are no restrictions on PSHC's (including its subsidiaries and successors) ability to obtain such cash surrender value as of or immediately following the Closing Date (other than applicable surrender charges). Neither Seacoast nor any PSHC Entity shall be obligated to contribute cash or other property to fund such benefits under the Deferred Plan. There are no restrictions on the PSHC's (including its subsidiaries and successors) right to terminate the Deferred Plan as to benefits which have not accrued as of the Closing Date. 5.16 MATERIAL CONTRACTS. Except as disclosed in Section 5.16 of the PSHC Disclosure Memorandum or otherwise reflected in the PSHC Financial Statements, none of the PSHC Entities, nor any of their respective Assets, businesses, or operations, is a party to, or is bound or affected by, or receives benefits under, (i) any employment, severance, termination, consulting, or retirement Contract providing for aggregate payments to any Person in any calendar year in excess of $50,000, (ii) any Contract relating to the borrowing of money by any PSHC Entity or the guarantee by any PSHC Entity of any such obligation (other than Contracts evidencing deposit liabilities, purchases of federal funds, fully-secured repurchase agreements, and Federal Home Loan Bank advances of depository institution Subsidiaries, trade payables and Contracts relating to borrowings or 16 guarantees made in the ordinary course of business), (iii) any Contract which prohibits or restricts any PSHC Entity from engaging in any business activities in any geographic area, line of business or otherwise in competition with any other Person, (iv) any Contract between or among PSHC Entities, (v) any Contract involving Intellectual Property (other than Contracts entered into in the ordinary course with customers and commercial "shrink-wrap" software licenses), (vi) any Contract relating to the provision of data processing, network communication, or other technical services to or by any PSHC Entity, (vii) any Contract relating to the purchase or sale of any goods or services (other than Contracts entered into in the ordinary course of business and involving payments under any individual Contract not in excess of $100,000), (viii) any exchange-traded or over-the-counter swap, forward, future, option, cap, floor, or collar financial Contract, or any other interest rate or foreign currency protection Contract not included on its balance sheet which is a financial derivative Contract, and (ix) any other Contract or amendment thereto that would be required to be filed as an exhibit to a Form 10-K filed by PSHC with the SEC as of the date of this Agreement (together with all Contracts referred to in Sections 5.10 and 5.15(a), the "PSHC Contracts"). With respect to each PSHC Contract and except as disclosed in Section 5.16 of the PSHC Disclosure Memorandum: (i) the Contract is in full force and effect; (ii) no PSHC Entity is in Default thereunder or would be in Default thereunder as a result of this Agreement or the transaction contemplated herein; (iii) no PSHC Entity has repudiated or waived any material provision of any such Contract; and (iv) no other party to any such Contract is, to the Knowledge of PSHC, in Default in any respect or has repudiated or waived any material provision thereunder. All of the indebtedness of any PSHC Entity for money borrowed is prepayable at any time by such PSHC Entity without penalty or premium. None of PSHC nor any of the PSHC Entities has any obligation or liability to any wholesale mortgage business ("Wholesale Mortgage Business") or to any Affiliate of such Persons to purchase, fund or extend credit with respect to any loans, extensions of credit, mortgages, or any participation or other interest therein originated, brokered or referred by or through such Persons, and the only outstanding balances under any such arrangements whereby PSNB is obligated to provide funding aggregate not more than $212,000, all of which will be repaid in full by not later than April 30, 1997. Except as described in Section 5.16 of the PSHC Disclosure Memorandum, all Contracts to which PSHC and/or its Subsidiaries are parties may be terminated by such PSHC Entity and its successors and assigns without penalty, charge, liability or further obligation. 5.17 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or, to the Knowledge of PSHC, threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) against any PSHC Entity or any employee benefit plan of any PSHC Entity, or against any director or employee of any PSHC Entity, in their capacity as such, or against any Asset, interest, or right of any of them, nor are there any Orders of any Regulatory Authorities, other governmental authorities, or arbitrators outstanding against any PSHC Entity. Section 5.17 of the PSHC Disclosure Memorandum contains a summary of all Litigation as of the date of this Agreement to which any PSHC Entity is a party and which names a PSHC Entity as a defendant or cross-defendant or for which any PSHC Entity has any potential Liability. 5.18 REPORTS. Except as set forth in Section 5.18 of the PSHC Disclosure Memorandum, since January 1, 1993, or the date of organization if later, each PSHC Entity has timely filed all reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with Regulatory Authorities (except, in the case of state securities authorities, failures to file which are not reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect). As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. 5.19 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument, or other writing furnished or to be furnished by any PSHC Entity or any Affiliate thereof to Seacoast pursuant to this Agreement or any other document, agreement, or instrument referred to herein contains or will contain any untrue statement of material fact or will omit to state a material fact necessary to make the statements therein, in light of the 17 circumstances under which they were made, not misleading. None of the information supplied or to be supplied by any PSHC Entity or any Affiliate thereof for inclusion in the Registration Statement to be filed by Seacoast with the SEC will, when the Registration Statement becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein not misleading. None of the information supplied or to be supplied by any PSHC Entity or any Affiliate thereof for inclusion in the Joint Proxy Statement to be mailed to each Party's shareholders in connection with the Shareholders' Meetings, and any other documents to be filed by a PSHC Entity or any Affiliate thereof with the SEC or any other Regulatory Authority in connection with the transactions contemplated hereby, will, at the respective time such documents are filed, and with respect to the Joint Proxy Statement, when first mailed to the shareholders of PSHC and Seacoast, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or, in the case of the Joint Proxy Statement or any amendment thereof or supplement thereto, at the time of the Shareholders' Meetings, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Shareholders' Meetings. All documents that any PSHC Entity or any Affiliate thereof is responsible for filing with any Regulatory Authority in connection with the transactions contemplated hereby will comply as to form in all material respects with the provisions of applicable Law. 5.20 ACCOUNTING, TAX AND REGULATORY MATTERS. No PSHC Entity or any Affiliate thereof has taken or agreed to take any action or has any Knowledge of any fact or circumstance that is reasonably likely to (i) prevent the Merger from qualifying for pooling-of-interests accounting treatment or as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b) or result in the imposition of a condition or restriction of the type referred to in the last sentence of such Section. 5.21 STATE TAKEOVER LAWS. Each PSHC Entity has taken all necessary action to exempt the transactions contemplated by this Agreement from, or if necessary to challenge the validity or applicability of, any applicable "moratorium," "fair price," "business combination," "control share," or other anti-takeover Laws (collectively, "Takeover Laws"). 5.22 CHARTER PROVISIONS. Each PSHC Entity has taken all action so that the entering into of this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement do not and will not result in the grant of any rights to any Person under the Articles of Incorporation, Bylaws or other governing instruments of any PSHC Entity or restrict or impair the ability of Seacoast or any of its Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with respect to, shares of any PSHC Entity that may be directly or indirectly acquired or controlled by them. This Agreement and the transactions contemplated herein will not trigger any supermajority voting provisions under the Articles of Incorporation, Bylaws, or other governing instruments of any PSHC Entity. 5.23 OPINION OF FINANCIAL ADVISOR. PSHC has received the opinion of Austin Associates, Inc., dated the date of this Agreement, to the effect that the consideration to be received in the Merger by the holders of PSHC Common Stock is fair, from a financial point of view, to such holders, a signed copy of which has been delivered to Seacoast. 5.24 BOARD RECOMMENDATION. The Board of Directors of PSHC, at a meeting duly called and held, has by unanimous vote of the directors present (who constituted all of the directors then in office) (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, taken together, are fair to and in the best interests of the shareholders and (ii) resolved to recommend that the holders of the shares of PSHC Common Stock approve this Agreement. 18 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SEACOAST Seacoast hereby represents and warrants to PSHC as follows: 6.1 ORGANIZATION, STANDING, AND POWER. Seacoast is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Florida, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its material Assets. Seacoast is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect. 6.2 AUTHORITY OF SEACOAST; NO BREACH BY AGREEMENT. (a) Seacoast has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Seacoast, subject to the approval of the issuance of the shares of Seacoast Common Stock pursuant to the Merger by sixty-six and two-thirds percent (66-2/3%) of all and each class of the votes cast at the Seacoast Shareholders' Meeting (assuming for such purpose that the votes cast in respect of such proposal represent sixty-six and two-thirds percent (66-2/3%) of all and each class of the outstanding Seacoast Common Stock eligible to vote at the Seacoast Shareholders' Meeting), which is the only shareholder vote required for approval of this Agreement and consummation of the merger by Seacoast. Subject to such requisite shareholder approval, this Agreement represents a legal, valid, and binding obligation of Seacoast, enforceable against Seacoast in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). (b) Neither the execution and delivery of this Agreement by Seacoast, nor the consummation by Seacoast of the transactions contemplated hereby, nor compliance by Seacoast with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of Seacoast's Articles of Incorporation or Bylaws, or (ii) constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any Seacoast Entity under, any Contract or Permit of any Seacoast Entity, where such Default or Lien, or any failure to obtain such Consent, is reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect, or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any Seacoast Entity or any of their respective material Assets (including any Seacoast Entity or any PSHC Entity becoming subject to or liable for the payment of any Tax or any of the Assets owned by any Seacoast Entity or any PSHC Entity being reassessed or revalued by any Taxing authority). (c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the NASD, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, or under the HSR Act, and other than Consents, filings, or notifications which, if not obtained or made, are not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by Seacoast of the Merger and the other transactions contemplated in this Agreement. 19 6.3 CAPITAL STOCK. (a) The authorized capital stock of Seacoast consists of (i) 10,000,000 shares of Seacoast Class A Common Stock, of which 3,903,392 shares are issued and 3,872,500 outstanding as of the date of this Agreement, (ii) 810,000 shares of $.10 par value Class B Common Stock, of which 384,638 shares are issued and outstanding as of the date of this Agreement, and (iii) 1,000,000 shares of Seacoast Preferred Stock, none of which are issued and outstanding. All of the issued and outstanding shares of Seacoast Capital Stock are, and all of the shares of Seacoast Common Stock to be issued in exchange for shares of PSHC Common Stock upon consummation of the Merger, when issued in accordance with the terms of this Agreement, will be, duly and validly issued and outstanding and fully paid and nonassessable. None of the outstanding shares of Seacoast Capital Stock has been, and none of the shares of Seacoast Common Stock to be issued in exchange for shares of PSHC Common Stock upon consummation of the Merger will be, issued in violation of any preemptive rights of the current or past shareholders of Seacoast. (b) Except as set forth in Section 6.3(a), or as disclosed in Section 6.3 of the Seacoast Disclosure Memorandum, there are no shares of capital stock or other equity securities of Seacoast outstanding and no outstanding Equity Rights relating to the capital stock of Seacoast. 6.4 SEACOAST SUBSIDIARIES. Seacoast has disclosed in Section 6.4 of the Seacoast Disclosure Memorandum all of the Seacoast Subsidiaries as of the date of this Agreement that are corporations (identifying its jurisdiction of incorporation, each jurisdiction in which the character of its Assets or the nature or conduct of its business requires it to be qualified and/or licensed to transact business, and the number of shares owned and percentage ownership interest represented by such share ownership) and all of the Seacoast Subsidiaries that are general or limited partnerships or other non-corporate entities (identifying the Law under which such entity is organized, each jurisdiction in which the character of its Assets or the nature or conduct of its business requires it to be qualified and/or licensed to transact business, and the amount and nature of the ownership interest therein). Except as disclosed in Section 6.4 of the Seacoast Disclosure Memorandum, Seacoast or one of its wholly-owned Subsidiaries owns all of the issued and outstanding shares of capital stock (or other equity interests) of each Seacoast Subsidiary. No capital stock (or other equity interest) of any Seacoast Subsidiary are or may become required to be issued (other than to another Seacoast Entity) by reason of any Equity Rights, and there are no Contracts by which any Seacoast Subsidiary is bound to issue (other than to another Seacoast Entity) additional shares of its capital stock (or other equity interests) or Equity Rights or by which any Seacoast Entity is or may be bound to transfer any shares of the capital stock (or other equity interests) of any Seacoast Subsidiary (other than to another Seacoast Entity). There are no Contracts relating to the rights of any Seacoast Entity to vote or to dispose of any shares of the capital stock (or other equity interests) of any Seacoast Subsidiary. All of the shares of capital stock (or other equity interests) of each Seacoast Subsidiary held by a Seacoast Entity are fully paid and (except pursuant to 12 USC Section 55 in the case of national banks and comparable, applicable state Law, if any, in the case of state depository institutions) nonassessable and are owned by the Seacoast Entity free and clear of any Lien. Each Seacoast Subsidiary is either a bank, a savings association, or a corporation, and is duly organized, validly existing, and (as to corporations) in good standing under the Laws of the jurisdiction in which it is incorporated or organized, and has the corporate power and authority necessary for it to own, lease and operate its Assets and to carry on its business as now conducted. Each Seacoast Subsidiary is duly qualified or licensed to transact business as a foreign corporation in good standing in the States of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect. Each Seacoast Subsidiary that is a depository institution is an "insured institution" as defined in the Federal Deposit Insurance Act and applicable regulations thereunder, and the deposits in which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund. 20 6.5 SEC FILINGS; FINANCIAL STATEMENTS. (a) Seacoast has timely filed and made available to PSHC all SEC Documents required to be filed by Seacoast since December 31, 1992 (the "Seacoast SEC Reports"). The Seacoast SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Laws and other applicable Laws and (ii) did not, at the time they were filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Seacoast SEC Reports or necessary in order to make the statements in such Seacoast SEC Reports, in light of the circumstances under which they were made, not misleading. Except for Seacoast Subsidiaries that are registered as a broker, dealer, or investment advisor, no Seacoast Subsidiary is required to file any SEC Documents. (b) Each of the Seacoast Financial Statements (including, in each case, any related notes) contained in the Seacoast SEC Reports, including any Seacoast SEC Reports filed after the date of this Agreement until the Effective Time, complied as to form in all material respects with the applicable published rules and regulations of the SEC with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly presented in all material respects the consolidated financial position of Seacoast and its Subsidiaries as at the respective dates and the consolidated results of operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount or effect. 6.6 ABSENCE OF UNDISCLOSED LIABILITIES. No Seacoast Entity has any Liabilities that are reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect, except Liabilities which are accrued or reserved against in the consolidated balance sheets of Seacoast as of December 31, 1995 and September 30, 1996, included in the Seacoast Financial Statements delivered prior to the date of this Agreement or reflected in the notes thereto. No Seacoast Entity has incurred or paid any Liability since September 30, 1996, except for such Liabilities incurred or paid (i) in the ordinary course of business consistent with past business practice and which are not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect or (ii) in connection with the transactions contemplated by this Agreement. 6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995, except as disclosed in the Seacoast Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 6.7 of the Seacoast Disclosure Memorandum, (i) there have been no events, changes or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect, and (ii) the Seacoast Entities have not taken any action, or failed to take any action, prior to the date of this Agreement, which action or failure, if taken after the date of this Agreement, would represent or result in a material breach or violation of any of the covenants and agreements of Seacoast provided in Article 7. 6.8 CERTAIN ENVIRONMENTAL AND EMPLOYEE BENEFIT MATTERS. (a) To the Knowledge of Seacoast, each Seacoast Entity, its Participation Facilities and its Operating Properties, are, and have been, in compliance with all environmental law, except for violations which are not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect. (b) Seacoast has delivered or made available to PSHC prior to the execution hereof, copies or summary plan descriptions of all pension, retirement, profit/life insurance, deferred compensation, common stock option, employee stock ownership, severance pay, vacation, bonus, or other incentive plan, all other written employee programs, arrangements or agreements, all medical, vision, dental and other health plans, all life insurance plans, and all other employee benefit plans or fringe benefit plans, including "employee benefit plans" as that term is defined in Section 3(3) of ERISA, currently adopted and maintained by, sponsored in whole or in part by, or contributed to by any Seacoast Entity or ERISA Affiliate thereof for the benefit of employees, retirees, 21 dependents, spouses, directors, independent contractors or other beneficiaries and under which such employees, retirees, dependents, spouses, directors, independent contractors, or other beneficiaries are eligible to participate (collectively, the "Seacoast Benefit Plans"). All Seacoast Benefit Plans are in compliance with the applicable terms of ERISA, the Internal Revenue Code or any other applicable Laws, except for such breaches or violations the which are not reasonably likely to have individually or in the aggregate, a Seacoast Material Adverse Effect. 6.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. In the opinion of management of Seacoast, the Allowance shown on the consolidated balance sheets of Seacoast included in the most recent Seacoast Financial Statements dated prior to the date of this Agreement was, and the Allowance shown on the consolidated balance sheets of Seacoast included in the Seacoast Financial Statements as of dates subsequent to the execution of this Agreement will be, as of the dates thereof, adequate (within the meaning of GAAP and applicable regulatory requirements or guidelines) to provide for all known or reasonably anticipated losses relating to or inherent in the loan, lease and securities portfolios (including accrued interest receivables) of the Seacoast Entities and other extensions of credit (including letters of credit and commitments to make loans or extend credit) by the Seacoast Entities as of the dates thereof. 6.10 ASSETS. (a) Except as disclosed in Section 6.10 of the Seacoast Disclosure Memorandum or as disclosed or reserved against in the Seacoast Financial Statements delivered prior to the date of this Agreement, the Seacoast Entities have good and marketable title, free and clear of all Liens, to all of their respective Assets, except for any such Liens or other defects of title which are not reasonably likely to have a Seacoast Material Adverse Effect. All tangible properties used in the businesses of the Seacoast Entities are in good condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent with Seacoast's past practices. (b) All Assets which are material to Seacoast's business on a consolidated basis, held under leases or subleases by any of the Seacoast Entities, are held under valid Contracts enforceable in accordance with their respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought), and each such Contract is in full force and effect. (c) The Seacoast Entities currently maintain insurance similar in amounts, scope and coverage to that maintained by other peer banking organizations. None of the Seacoast Entities has received notice from any insurance carrier that (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated, or (ii) premium costs with respect to such policies of insurance will be substantially increased. There are presently no claims for amounts exceeding in any individual cases $5,000 or in the aggregate $100,000 pending under such policies of insurance and no notices have been given by any Seacoast Entity under such policies. (d) The Assets of the Seacoast Entities include all assets required to operate the business of the Seacoast Entities as presently conducted. 6.11 INTELLECTUAL PROPERTY. Each Seacoast Entity owns or has a license to use all of the Intellectual Property used by such Seacoast Entity in the course of its business. Each Seacoast Entity is the owner of or has a license to any Intellectual Property sold or licensed to a third party by such Seacoast Entity in connection with such Seacoast Entity's business operations, and such Seacoast Entity has the right to convey by sale or license any Intellectual Property so conveyed. No Seacoast Entity is in Default under any of its Intellectual Property licenses. No proceedings have been instituted, or are pending or to the Knowledge of Seacoast threatened, which challenge the rights of any Seacoast Entity with respect to Intellectual Property used, sold or licensed by such Seacoast Entity in the course of its business, nor has any person claimed or alleged any rights to 22 such Intellectual Property. The conduct of the business of the Seacoast Entities does not infringe any Intellectual Property of any other person. Except as disclosed in Section 6.11 of the Seacoast Disclosure Memorandum, no Seacoast Entity is obligated to pay any recurring royalties to any Person with respect to any such Intellectual Property. Except as disclosed in Section 6.11 of the Seacoast Disclosure Memorandum, every officer, director, or employee of any Seacoast Entity is a party to a Contract which requires such officer, director or employee to assign any interest in any Intellectual Property to a Seacoast Entity and to keep confidential any trade secrets, proprietary data, customer information, or other business information of a Seacoast Entity, and no such officer, director or employee is party to any Contract with any Person other than a Seacoast Entity which requires such officer, director or employee to assign any interest in any Intellectual Property to any Person other than a Seacoast Entity or to keep confidential any trade secrets, proprietary data, customer information, or other business information of any Person other than a Seacoast Entity. Except as disclosed in Section 6.11 of the Seacoast Disclosure Memorandum, no officer, director or employee of any Seacoast Entity is party to any Contract which restricts or prohibits such officer, director or employee from engaging in activities competitive with any Person, including any Seacoast Entity. 6.12 [RESERVED]. 6.13 COMPLIANCE WITH LAWS. Seacoast is duly registered as a bank holding company under the BHC Act. Each Seacoast Entity has in effect all Permits necessary for it to own, lease or operate its material Assets and to carry on its business as now conducted, except for those Permits the absence of which are not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect, and there has occurred no Default under any such Permit, other than Defaults which are not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect. Except as disclosed in Section 6.13 of the Seacoast Disclosure Memorandum, none of the Seacoast Entities: (a) is in Default under its Articles of Incorporation or Bylaws (or other governing instruments); or (b) is in Default under any Laws, Orders or Permits applicable to its business or employees conducting its business, except for Defaults which are not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect; or (c) since January 1, 1993, has received any notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that any Seacoast Entity is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, (ii) threatening to revoke any Permits or (iii) requiring any Seacoast Entity to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business, or in any manner relates to its capital adequacy, its credit or reserve policies, its management, or the payment of dividends. 6.14 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or, to the Knowledge of Seacoast, threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) against any Seacoast Entity or employee benefit plan of any Seacoast Entity, or against any director or employee of any Seacoast Entity, in their capacity as such, or against any Asset, interest, or right of any of them, that is reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect, nor are there any Orders of any Regulatory Authorities, other governmental authorities, or arbitrators outstanding against any Seacoast Entity. 6.15 REPORTS. Since January 1, 1993, or the date of organization if later, each Seacoast Entity has filed all reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with Regulatory Authorities (except, in the case of state securities authorities, failures to file which are not reasonably likely to have, individually or in the aggregate, a Seacoast Material Adverse Effect). 23 As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. 6.16 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument or other writing furnished or to be furnished by any Seacoast Entity or any Affiliate thereof to PSHC pursuant to this Agreement or any other document, agreement or instrument referred to herein contains or will contain any untrue statement of material fact or will omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information supplied or to be supplied by any Seacoast Entity or any Affiliate thereof for inclusion in the Registration Statement to be filed by Seacoast with the SEC, will, when the Registration Statement becomes effective, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein not misleading. None of the information supplied or to be supplied by any Seacoast Entity or any Affiliate thereof for inclusion in the Joint Proxy Statement to be mailed to each Party's shareholders in connection with the Shareholders' Meetings, and any other documents to be filed by any Seacoast Entity or any Affiliate thereof with the SEC or any other Regulatory Authority in connection with the transactions contemplated hereby, will, at the respective time such documents are filed, and with respect to the Joint Proxy Statement, when first mailed to the shareholders of PSHC and Seacoast, be false or misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or, in the case of the Joint Proxy Statement or any amendment thereof or supplement thereto, at the time of the Shareholders' Meetings, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the Shareholders' Meetings. All documents that any Seacoast Entity or any Affiliate thereof is responsible for filing with any Regulatory Authority in connection with the transactions contemplated hereby will comply as to form in all material respects with the provisions of applicable Law. 6.17 ACCOUNTING, TAX AND REGULATORY MATTERS. No Seacoast Entity or any Affiliate thereof has taken or agreed to take any action or has any Knowledge of any fact or circumstance that is reasonably likely to (i) prevent the Merger from qualifying for pooling-of-interests accounting treatment or as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b) or result in the imposition of a condition or restriction of the type referred to in the last sentence of such Section. All Tax Returns required to be filed by or on behalf of any of the Seacoast Entities have been timely filed or requests for extensions have been timely filed, granted and have not expired for periods on or before December 31, 1995 and on or before the day of the most recent fiscal year end immediately preceding the Effective Time, except to the extent that all such failures to file, taken together, are not reasonably likely to have a Seacoast Material Adverse Effect and all such Tax Returns filed are complete and accurate in all material respects. All Taxes shown on Tax Returns have been paid. As of the date of this Agreement, there is no audit examination, deficiency, or refund Litigation with respect to any Taxes, except as reserved against any Seacoast Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 6.17 of the Seacoast Disclosure Memorandum. The provision for Taxes due or to become due for any of the Seacoast Entities for the period or periods through and including the day of the respective Seacoast Financial Statements has been made and is reflected on such Seacoast Financial Statements is sufficient to cover all such Taxes. ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION 7.1 AFFIRMATIVE COVENANTS OF PSHC. Except as disclosed in Section 7.1 of the PSHC Disclosure Memorandum with respect to PSNB's proposed Ft. Pierce branch office, the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of 24 Seacoast shall have been obtained, and except as otherwise expressly contemplated herein, PSHC shall and shall cause each of its Subsidiaries to operate its business only in the usual, regular, and ordinary course, and in a manner designed to preserve intact its business organization and Assets and maintain its rights and franchises, and shall take no action which would (i) adversely affect the ability of any Party to obtain any Consents required for the transactions contemplated hereby without imposition of a condition or restriction of the type referred to in the last sentences of Section 9.1(b) or 9.1(c), or (ii) adversely affect the ability of any Party to perform its covenants and agreements under this Agreement. Furthermore, except for the up to $212,000 of credit, heretofore committed by PSNB and described in the fourth sentence of Section 5.16 hereof, any loans, leases or extensions of credit secured by real property originated, purchased or funded in whole or in part by any PSHC Entity, where the obligor thereon and the real property related thereto are not both located in St. Lucie, Martin and/or Indian River Counties, Florida (collectively, the "Counties") shall conform to the FNMA or FHLMC seller/servicer guidelines applicable to such Loans and shall be immediately saleable to FNMA and/or FHLMC. PSHC and each PSHC Entity shall immediately terminate and discontinue purchasing, funding or otherwise extending credit or committing or agreeing to any of the foregoing with respect to any loans, extensions of credit, leases and/or mortgages or any participations or other interests therein from any Wholesale Mortgage Business and/or any Affiliate of such Wholesale Mortgage Business, except to meet PSNB's contractual obligations under the existing commitments described in the fourth sentence of Section 5.16 hereof, and except to purchase and hold as temporary investments, up to $2.5 million at any time of fully-approved FHA and VA Loans at any time through April 30, 1997. 7.2 NEGATIVE COVENANTS OF PSHC. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of Seacoast shall have been obtained, and except as otherwise expressly contemplated herein, PSHC covenants and agrees that it will not do or agree or commit to do, or permit any of its Subsidiaries to do or agree or commit to do, any of the following: (a) amend the Articles of Incorporation, Bylaws or other governing instruments of any PSHC Entity or, except as expressly contemplated by this Agreement, or (b) incur any additional debt obligation or other obligation for borrowed money (other than indebtedness of a PSHC Entity to another PSHC Entity) in excess of an aggregate of $50,000 (for the PSHC Entities on a consolidated basis) except in the ordinary course of the business of PSHC Subsidiaries consistent with past practices (which shall include, for PSHC Subsidiaries that are depository institutions, creation of deposit liabilities, purchases of federal funds, advances from the Federal Reserve Bank or Federal Home Loan Bank, and entry into repurchase agreements fully secured by U.S. government or agency securities), or impose, or suffer the imposition, on any Asset of any PSHC Entity of any Lien or permit any such Lien to exist (other than in connection with deposits, repurchase agreements, bankers acceptances, "treasury tax and loan" accounts established in the ordinary course of business, the satisfaction of legal requirements in the exercise of trust powers, and Liens in effect as of the date hereof that are disclosed in the PSHC Disclosure Memorandum); or (c) repurchase, redeem, or otherwise acquire or exchange (other than exchanges in the ordinary course under employee benefit plans), directly or indirectly, any shares, or any securities convertible into any shares, of the capital stock of any PSHC Entity, or declare or pay any dividend or make any other distribution in respect of PSHC's capital stock; or (d) except for this Agreement, or pursuant to the exercise of stock options or warrants or warrants outstanding as of the date hereof and pursuant to the terms thereof in existence on the date hereof, or as disclosed in Section 7.2(d) of the PSHC Disclosure Memorandum, issue, sell, pledge, encumber, authorize the issuance of, enter into any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit to become outstanding, any additional shares of PSHC Common Stock or any other capital stock of any PSHC Entity, or any stock appreciation rights, or any option, warrant, or other Equity Right; or 25 (e) adjust, split, combine or reclassify any capital stock of any PSHC Entity or issue or authorize the issuance of any other securities in respect of or in substitution for shares of PSHC Common Stock, or sell, lease, mortgage or otherwise dispose of or otherwise encumber (x) any shares of capital stock of any PSHC Subsidiary (unless any such shares of stock are sold or otherwise transferred to another PSHC Entity) or (y) any Asset having a book value in excess of $50,000 other than in the ordinary course of business for reasonable and adequate consideration; or (f) (1) except for purchases of U.S. Treasury securities or U.S. Government agency securities, which in either case have maturities of one year or less, purchase any securities or make any material investment, either by purchase of stock or securities, contributions to capital, Asset transfers, or purchase of any Assets, in any Person other than a wholly owned PSHC Subsidiary, or otherwise acquire direct or indirect control over any Person, other than in connection with (i) foreclosures in the ordinary course of business, (ii) acquisitions of control by a depository institution subsidiary solely in its fiduciary capacity, or (iii) the creation of new wholly owned Subsidiaries organized to conduct or continue activities otherwise permitted by this Agreement; (2) make any new loans or extensions of credit or renew, extend or renegotiate any existing loans or extensions of credit (i) with respect to properties or businesses outside of the Counties or to borrowers whose principal residence is outside of the Counties, (ii) that are unsecured in excess of $100,000, or (iii) that are secured in excess of $250,000; (3) purchase or sell (except for sales of single family residential first mortgage loans in the ordinary course of PSHC's business for fair market value) any whole loans, leases, mortgages or any loan participations or agented credits or other interest therein, (4) renew or renegotiate any loans or credits that are on any watch list and/or are classified or special mentioned or take any similar actions with respect to collateral held with respect to debts previously contracted or other real estate owned, except pursuant to safe and sound banking practices and with prior disclosure to First National; provided, however, that PSHC may, without the prior notice to or written consent of First National, renew or extend existing credits on substantially similar terms and conditions as present at the time such credit was made or last extended, renewed or modified, for a period not to exceed one year and at rates not less than market rates for comparable credits and transactions and without any release of any collateral except as any PSHC Entity is presently obligated under existing written agreements kept as part of such PSHC Entity's official records. If any PSHC Entity makes, extends, renews, renegotiates, compromises or settles any loans or extensions of credit or releases any collateral therefore that are subject to the prior disclosure to First National hereunder and First National has objected thereto the Purchase Price shall be reduced on a dollar for dollar basis in an amount equal to all outstanding principal of, all accrued but unpaid interest and other charges on such loan(s) as of the Closing Date; or (g) grant any increase in compensation or benefits to the employees or officers of any PSHC Entity, except in accordance with past practice disclosed in Section 7.2(g) of the PSHC Disclosure Memorandum or as required by Law; pay any severance or termination pay or any bonus other than pursuant to written policies or written Contracts in effect on the date of this Agreement and disclosed in Section 7.2(g) of the PSHC Disclosure Memorandum; and enter into or amend any severance agreements with officers of any PSHC Entity; grant any material increase in fees or other increases in compensation or other benefits to directors of any PSHC Entity except in accordance with past practice disclosed in Section 7.2(g) of the PSHC Disclosure Memorandum; or voluntarily accelerate the vesting of any stock options or other stock-based compensation or employee benefits or other Equity Rights; or (h) enter into or amend any employment Contract between any PSHC Entity and any Person (unless such amendment is required by Law) that the PSHC Entity does not have the unconditional right to terminate without Liability (other than Liability for services already rendered), at any time on or after the Effective Time; or (i) adopt any new employee benefit plan of any PSHC Entity or terminate or withdraw from, or make any material change in or to, any existing employee benefit plans of any PSHC Entity other than any such change that is required by Law or that, in the opinion of counsel, is necessary or advisable to maintain the tax qualified status of any such plan, or make any distributions from such employee benefit plans, except as required by Law, the terms of such plans or consistent with past practice; or 26 (j) make any significant change in any Tax or accounting methods or systems of internal accounting controls, except as may be appropriate to conform to changes in Tax Laws or regulatory accounting requirements or GAAP; or (k) commence any Litigation other than in accordance with past practice, settle any Litigation involving any Liability of any PSHC Entity for material money damages or restrictions upon the operations of any PSHC Entity; or (l) except in the ordinary course of business and as expressly permitted in Section 7.2(f), enter into, modify, amend or terminate any material Contract (including any loan Contract with an unpaid balance or any Contract calling for payments exceeding $100,000) or waive, release, compromise or assign any material rights or claims. 7.3 COVENANTS OF SEACOAST. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of PSHC shall have been obtained, and except as otherwise expressly contemplated herein, Seacoast covenants and agrees that it shall (a) continue to conduct its business and the business of its Subsidiaries in a manner designed in its reasonable judgment, to enhance the long-term value of the Seacoast Capital Stock and the business prospects of the Seacoast Entities and to the extent consistent therewith use all reasonable efforts to preserve intact the Seacoast Entities' core businesses and goodwill with their respective employees and the communities they serve, and (b) take no action which would (i) materially adversely affect the ability of any Party to obtain any Consents required for the transactions contemplated hereby without imposition of a condition or restriction of the type referred to in the last sentences of Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any Party to perform its covenants and agreements under this Agreement; provided, that the foregoing shall not prevent any Seacoast Entity from acquiring any Assets or other businesses or from discontinuing or disposing of any of its Assets or business if such action is, in the judgment of Seacoast, desirable in the conduct of the business of Seacoast and its Subsidiaries. Seacoast further covenants and agrees that it will not, without the prior written consent of PSHC, which consent shall not be unreasonably withheld, amend the Articles of Incorporation or Bylaws of Seacoast, in each case, in any manner adverse to the holders of PSHC Common Stock as compared to rights of holders of Seacoast Common Stock generally as of the date of this Agreement. 7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written notice promptly to the other Party upon becoming aware of the occurrence or impending occurrence of any event or circumstance relating to it or any of its Subsidiaries which (i) is reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect or a Seacoast Material Adverse Effect, as applicable, or (ii) would cause or constitute a material breach of any of its representations, warranties, or covenants contained herein, and to use its reasonable efforts to prevent or promptly to remedy the same. 7.5 REPORTS. Each Party and its Subsidiaries shall file all reports required to be filed by it with Regulatory Authorities between the date of this Agreement and the Effective Time and shall deliver to the other Party copies of all such reports promptly after the same are filed. If financial statements are contained in any such reports filed with the SEC, such financial statements will fairly present in all material respects the consolidated financial position of the entity filing such statements as of the dates indicated and the consolidated results of operations, changes in shareholders' equity, and cash flows for the periods then ended in accordance with GAAP (subject in the case of interim financial statements to normal recurring year-end adjustments that are not material). As of their respective dates, such reports filed with the SEC will comply in all material respects with the Securities Laws and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Any financial statements contained in any other reports to another Regulatory Authority shall be prepared in accordance with Laws applicable to such reports. 27 ARTICLE 8 ADDITIONAL AGREEMENTS 8.1 REGISTRATION STATEMENT; PROXY STATEMENT; SHAREHOLDER APPROVAL. As soon as reasonably practicable after execution of this Agreement, at a date determined by Seacoast in its sole discretion, Seacoast shall prepare and file the Registration Statement with the SEC, and shall use its reasonable efforts to cause the Registration Statement to become effective under the 1933 Act and take any action required to be taken under the applicable state Blue Sky or securities Laws in connection with the issuance of the shares of Seacoast Common Stock upon consummation of the Merger. PSHC shall cooperate in the preparation and filing of the Registration Statement and shall furnish all information concerning it and the holders of its capital stock as Seacoast may reasonably request in connection with such action. PSHC shall call a Shareholders' Meeting, to be held as soon as reasonably practicable after the Registration Statement is declared effective by the SEC, for the purpose of voting upon approval of this Agreement and such other related matters as it deems appropriate. Seacoast shall call a Shareholders' Meeting, to be held as soon as reasonably practicable after the Registration Statement is declared effective by the SEC, for the purpose of voting upon the issuance of shares of Seacoast Common Stock pursuant to the Merger and such other related matters as it deems appropriate. In connection with the Shareholders' Meetings, (i) PSHC and Seacoast shall prepare and file with the SEC a Joint Proxy Statement and mail such Joint Proxy Statement to their respective shareholders, (ii) the Parties shall furnish to each other all information concerning them that they may reasonably request in connection with such Joint Proxy Statement, (iii) the Board of Directors of PSHC and Seacoast shall recommend to their respective shareholders the approval of the matters submitted for approval, and (iv) the Board of Directors and officers of PSHC and Seacoast shall use their reasonable efforts to obtain such shareholders' approval. Seacoast and PSHC shall make all necessary filings with respect to the Merger under the Securities Laws. 8.2 NASDAQ LISTING. Seacoast shall use its reasonable efforts to list, prior to the Effective Time, on the Nasdaq National Market the shares of Seacoast Common Stock to be issued to the holders of PSHC Common Stock pursuant to the Merger, and Seacoast shall give all notices and make all filings with the NASD required in connection with the transactions contemplated herein. 8.3 APPLICATIONS. Seacoast shall promptly prepare and file, and PSHC shall cooperate in the preparation and, where appropriate, filing of, applications with all Regulatory Authorities having jurisdiction over the transactions contemplated by this Agreement seeking the requisite Consents necessary to consummate the transactions contemplated by this Agreement. The Parties shall deliver to each other copies of all filings, correspondence and orders to and from all Regulatory Authorities in connection with the transactions contemplated hereby. 8.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the conditions of this Agreement, Seacoast shall execute and file the Articles of Merger with the Secretary of State of the State of Florida in connection with the Closing. 8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and conditions of this Agreement, each Party agrees to use, and to cause its Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper, or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable after the date of this Agreement, the transactions contemplated by this Agreement, including using its reasonable efforts to lift or rescind any Order adversely affecting its ability to consummate the transactions contemplated herein and to cause to be satisfied the conditions referred to in Article 9; provided, that nothing herein shall preclude either Party from exercising its rights under this Agreement. Each Party shall use, and shall cause each of its Subsidiaries to use, its reasonable efforts to obtain all Consents necessary or desirable for the consummation of the transactions contemplated by this Agreement. 28 8.6 INVESTIGATION AND CONFIDENTIALITY. (a) Prior to the Effective Time, each Party shall keep the other Party advised of all material developments relevant to its business and to consummation of the Merger and shall permit the other Party to make or cause to be made such investigation of the business and properties of it and its Subsidiaries and of their respective financial and legal conditions as the other Party reasonably requests, provided that such investigation shall be reasonably related to the transactions contemplated hereby and shall not interfere unnecessarily with normal operations. No investigation by a Party shall affect the representations and warranties of the other Party. (b) In addition to the Parties' respective obligations under the Confidentiality Agreement, which are hereby reaffirmed and adopted, and incorporated by reference herein each Party shall, and shall cause its advisers and agents to, maintain the confidentiality of all confidential information furnished to it by the other Party concerning its and its Subsidiaries' businesses, operations, and financial positions and shall not use such information for any purpose except in furtherance of the transactions contemplated by this Agreement. In the event that a Party is required by applicable law or valid court process to disclose any such confidential information then such Party shall provide the other Party with prompt written notice of any such requirement so that the other Party may seek a protective order or other appropriate remedy and/or waive compliance with this Section 8.6. If in the absence of a protective order or other remedy or the receipt of a waiver by the other Party, a Party is nonetheless, in the written opinion of counsel, legally compelled to disclose any such confidential information to any tribunal or else stand liable for contempt or suffer other censure or penalty, a Party may, without liability hereunder, disclose to such tribunal only that portion of the confidential information which such counsel advises such Party is legally required to be disclosed, provided that such disclosing Party use its best efforts to preserve the confidentiality of such confidential information, including without limitation, by cooperating with the other Party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded such confidential information by such tribunal. If this Agreement is terminated prior to the Effective Time, each Party shall promptly return or certify the destruction of all documents and copies thereof, and all work papers containing confidential information received from the other Party. (c) PSHC shall use its reasonable efforts to exercise its rights under confidentiality agreements entered into with Persons, if any, which were considering an Acquisition Proposal with respect to PSHC to preserve the confidentiality of the information relating to the PSHC Entities provided to such Persons and their Affiliates and Representatives. (d) Each Party agrees to give the other Party notice as soon as practicable after any determination by it of any fact or occurrence relating to the other Party which it has discovered through the course of its investigation and which represents, or is reasonably likely to represent, either a material breach of any representation, warranty, covenant or agreement of the other Party or which has had or is reasonably likely to have a PSHC Material Adverse Effect or a Seacoast Material Adverse Effect, as applicable. 8.7 PRESS RELEASES. Prior to the Effective Time, PSHC and Seacoast shall consult with each other as to the form and substance of any press release or other public disclosure materially related to this Agreement or any other transaction contemplated hereby; provided, that nothing in this Section 8.7 shall be deemed to prohibit any Party from making any disclosure which its counsel deems necessary or advisable in order to satisfy such Party's disclosure obligations imposed by Law. 8.8 CERTAIN ACTIONS. Except with respect to this Agreement and the transactions contemplated hereby, no PSHC Entity nor any Affiliate thereof nor any Representatives thereof retained by any PSHC Entity shall directly or indirectly solicit any Acquisition Proposal by any Person. Except to the extent the Board of Directors of PSHC, after having consulted with and considered the advice of outside counsel, reasonably determines in good faith that the failure to take such actions would constitute a breach of fiduciary duties of the members of such Board of Directors to PSHC's shareholder under applicable law, no PSHC Entity or any Affiliate or Representative thereof shall furnish any non-public information that it is not legally obligated to furnish, negotiate with respect to, or enter into any Contract with respect to, any Acquisition Proposal, but PSHC may 29 communicate information about such an Acquisition Proposal to its shareholders if and to the extent that it is required to do so in order to comply with its legal obligations. PSHC shall promptly advise Seacoast following the receipt of any Acquisition Proposal and the details thereof, and advise Seacoast of any developments with respect to such Acquisition Proposal promptly upon the occurrence thereof. PSHC shall (i) immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Persons conducted heretofore with respect to any of the foregoing, and (ii) direct and use its reasonable efforts to cause all of its Affiliates and Representatives not to engage in any of the foregoing. 8.9 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and agrees to use its reasonable efforts to cause the Merger, and to use its reasonable efforts to take no action which would cause the Merger not, to qualify for treatment as a pooling of interests for accounting purposes or as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code for federal income tax purposes. 8.10 STATE TAKEOVER LAWS. Each PSHC Entity and each PSHC shareholder shall take the necessary steps to exempt the transactions contemplated by this Agreement from, or if necessary to challenge the validity or applicability of, any applicable Takeover Law, including the FBCA. 8.11 CHARTER PROVISIONS. Except as required by applicable Law or as otherwise provided in this Agreement, each PSHC Entity shall take all necessary action to ensure that the entering into of this Agreement and the consummation of the Merger and the other transactions contemplated hereby do not and will not result in the grant of any rights to any Person under the Articles of Incorporation, Bylaws or other governing instruments of any PSHC Entity or restrict or impair the ability of Seacoast or any of its Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with respect to, shares of any PSHC Entity that may be directly or indirectly acquired or controlled by them. 8.12 PSHC MEETINGS. Each PSHC Entity shall give prior notice of each meeting or proposed action by any of their respective Boards of Directors and/or committees, including a description of any matters to be discussed and/or acted upon, and shall permit a representative of Seacoast to attend each such meeting, except during discussions relating to the transactions contemplated herein that present conflict of interest and/or confidentiality issues. 8.13 AGREEMENT OF AFFILIATES. PSHC has disclosed in Section 8.13 of the PSHC Disclosure Memorandum all Persons whom it reasonably believes is an "affiliate" of PSHC for purposes of Rule 145 under the 1933 Act. PSHC shall use its reasonable efforts to cause each such Person to deliver to Seacoast upon the execution of this Agreement a written agreement, substantially in the form of Exhibit 2, providing that such Person will not sell, pledge, transfer, or otherwise dispose of the shares of PSHC Common Stock held by such Person except as contemplated by such agreement or by this Agreement and will not sell, pledge, transfer, or otherwise dispose of the shares of Seacoast Common Stock to be received by such Person upon consummation of the Merger except in compliance with applicable provisions of the 1933 Act and the rules and regulations thereunder and, until such time as financial results covering at least 30 days of combined operations of Seacoast and PSHC have been published within the meaning of Section 201.01 of the SEC's Codification of Financial Reporting Policies. Shares of Seacoast Common Stock issued to such affiliates of PSHC in exchange for shares of PSHC Common Stock shall not be transferable until such time as financial results covering at least 30 days of combined operations of Seacoast and PSHC have been published within the meaning of Section 201.01 of the SEC's Codification of Financial Reporting Policies, regardless of whether each such affiliate has provided the written agreement referred to in this Section 8.13 (and Seacoast shall be entitled to place restrictive legends upon certificates for shares of Seacoast Common Stock issued to affiliates of PSHC pursuant to this Agreement to enforce the provisions of this Section 8.13; provided that Seacoast removes such legends at the appropriate time). Seacoast shall not be required to maintain the effectiveness of the Registration Statement under the 1933 Act for the purposes of resale of Seacoast Common Stock by such affiliates. 30 8.14 EMPLOYEE BENEFITS AND CONTRACTS. (a) Following the Effective Time, Seacoast shall provide generally to officers and employees of the PSHC Entities employee benefits under employee benefit and welfare plans (other than stock option or other plans involving the potential issuance of Seacoast Common Stock), on terms and conditions which when taken as a whole are substantially similar to those currently provided by the Seacoast Entities to their similarly situated officers and employees; provided, that, for a period of 12 months after the Effective Time, Seacoast shall provide generally to officers and employees of PSHC Entities severance benefits in accordance with the policies of either (i) PSHC as disclosed in Section 8.14 of the PSHC Disclosure Memorandum, or (ii) Seacoast, whichever of (i) or (ii) will provide the greater benefit to the officer or employee. Seacoast shall waive any pre-existing condition exclusion under any employee health plan for which any employees and/or officers and dependents covered by PSHC plans as of Closing of the PSHC Entities shall become eligible by virtue of the preceding sentence, to the extent (i) such pre-existing condition was covered under the corresponding plan maintained by the PSHC Entity and (ii) the individual affected by the pre- existing condition was covered by the PSHC Entity's corresponding plan on the date which immediately precedes the Effective Time, provided that PSHC has disclosed in Section 8.14 of the PSHC Disclosure Memorandum and at Closing that none of its employees, officers or other participants or their respective dependents, to the best of PSHC and PSNB's knowledge and belief, have any long-term disabilities or conditions, which in the reasonable judgment of Seacoast would materially adversely affect the claims experience and/or costs of any employee benefit plan or insurance maintained by or through any Seacoast Entity. For purposes of participation, vesting and (except in the case of Seacoast retirement plans) benefit accrual under Seacoast's employee benefit plans, the service of the employees of the PSHC Entities prior to the Effective Time shall be treated as service with a Seacoast Entity participating in such employee benefit plans. Seacoast also shall cause the Surviving Corporation and its Subsidiaries to honor in accordance with their terms all employment, severance, consulting and other compensation Contracts disclosed in Section 8.14 of the PSHC Disclosure Memorandum to Seacoast between any PSHC Entity and any current or former director, officer, or employee thereof, and all provisions for vested benefits or other vested amounts earned or accrued through the Effective Time under the PSHC Benefit Plans. (b) Upon the execution hereof, a mutually acceptable employment agreement between J. Hal Roberts, Jr. and Seacoast or First National shall be executed and delivered, and which shall become effective at the Effective Time. (c) Subject to compliance with applicable Laws and the absence of any Material Adverse Effects upon Seacoast or any PSHC Benefit Plans and/or Seacoast Benefit Plans, Seacoast intends to merge the PSHC 401(k) Plan with the Seacoast 401(k) Plan. (d) Effective upon the Effective Time, PSHC and, as applicable, its Subsidiaries shall terminate, their Employee Non-Qualified Stock Investment Plan and Trust of Port St. Lucie National Bank and the Deferred Compensation Plan offered to Directors. Such termination and the effects thereof shall be in accordance with Section 5.15(h) hereof. 8.15 INDEMNIFICATION. (a) With respect to all claims brought during the period of four years after the Effective Time, Seacoast shall indemnify, defend and hold harmless the present and former directors, officers, employees and agents of the PSHC Entities (each, an "Indemnified Party") against all Liabilities arising out of actions or omissions arising out of the Indemnified Party's service or services as directors, officers, employees or agents of PSHC or, at PSHC's request, of another corporation, partnership, joint venture, trust or other enterprise occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement) to the fullest extent permitted under Florida Law and by PSHC's Articles of Incorporation and Bylaws as in effect on the date hereof, including provisions relating to advances of expenses incurred in the defense of any Litigation and whether or not any Seacoast Entity is insured against any such matter. Without limiting the foregoing, in any case in which approval by the Surviving Corporation is required to effectuate any indemnification, the Surviving 31 Corporation shall direct, at the election of the Indemnified Party, that the determination of any such approval shall be made by independent counsel mutually agreed upon between Seacoast and the Indemnified Party. (b) Seacoast shall, to the extent available, (and PSHC shall cooperate prior to the Effective Time in these efforts) maintain in effect for a period of two years after the Effective Time PSHC's existing directors' and officers' liability insurance policy (provided that Seacoast may substitute therefor (i) policies of at least the same coverage and amounts containing terms and conditions which are substantially no less advantageous or (ii) with the consent of PSHC given prior to the Effective Time, any other policy) with respect to claims arising from facts or events which occurred prior to the Effective Time and covering persons who are currently covered by such insurance; provided, that Seacoast shall not be obligated to make aggregate premium payments for such two-year period in respect of such policy (or coverage replacing such policy) which exceed, for the portion related to PSHC's directors and officers, 150% of the annual premium payments on PSHC's current policy in effect as of the date of this Agreement (the "Maximum Amount"). (c) Any Indemnified Party wishing to claim indemnification under paragraph (a) of this Section 8.15, upon learning of any such Liability or Litigation, shall promptly notify Seacoast thereof. In the event of any such Litigation (whether arising before or after the Effective Time), (i) the Surviving Corporation shall have the right to assume the defense thereof and the Surviving Corporation shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if the Surviving Corporation elects not to assume such defense or counsel for the Indemnified Parties advises that there are substantive issues which raise conflicts of interest between the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, that the Surviving Corporation shall be obligated pursuant to this paragraph (c) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will cooperate in the defense of any such Litigation, and (iii) the Surviving Corporation shall not be liable for any settlement effected without its prior written consent; and provided further that the Surviving Corporation shall not have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable Law. 8.16 CERTAIN POLICIES OF PSHC. Seacoast and PSHC shall consult with respect to their respective loan, litigation and real estate valuation policies and practices (including loan classifications and levels of reserves) and PSHC shall make such modification or changes to its policies and practices, if any, prior to the Effective Time as may be mutually agreed upon. Seacoast and PSHC also shall consult with respect to the character, amount and timing of restructuring and Merger-related expense charges to be taken by each of the Parties in connection with the transactions contemplated by this Agreement and shall take such charges in accordance with GAAP, prior to the Effective Time, as may be mutually agreed upon by the Parties. Neither Party's representations, warranties, covenants or agreements contained in this Agreement shall be deemed to be inaccurate or breached in any respect as a consequence of any modifications or charges undertaken solely on account of this Section 8.16. 8.17 NOMINATION AND ELECTION OF DIRECTORS. Seacoast shall as soon as practicable following the Effective Time nominate and use its best efforts to cause to be elected to the Seacoast and First National Board of Directors two candidates from the current PSHC Board of Directors. In addition, Seacoast shall cause First National to amend its Bylaws as soon as practicable following the Effective Time to provide for one or more First National Advisory Boards, including an First National Advisory Board for Port St. Lucie County. Seacoast shall cause each of the current directors of PSHC (other than such PSHC and/or PSNB directors who are elected as directors of Seacoast and/or First National) to be nominated and elected to the First National Advisory Board for St. Lucie County as soon as practicable after such Advisory Board is constituted according to the preceding sentence. 32 ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE 9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of each Party to perform this Agreement and consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by both Parties pursuant to Section 11.6: (a) SHAREHOLDER APPROVAL. The shareholders of PSHC shall have approved this Agreement, and the consummation of the transactions contemplated hereby, including the Merger, as and to the extent required by Law, by the provisions of any governing instruments, or by the rules of the NASD. The shareholders of Seacoast shall have approved the issuance of shares of Seacoast Common Stock pursuant to the Merger, as and to the extent required by Law, by the provisions of any governing instruments, or by the rules of the NASD. (b) REGULATORY APPROVALS. All Consents of, filings and registrations with, and notifications to, all Regulatory Authorities required for consummation of the Merger shall have been obtained or made and shall be in full force and effect and all waiting periods required by Law shall have expired. No Consent obtained from any Regulatory Authority which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner (including requirements relating to the raising of additional capital or the disposition of Assets) which in the reasonable judgment of the Board of Directors of Seacoast would so materially adversely affect the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such Party would not, in its reasonable judgment, have entered into this Agreement. (c) CONSENTS AND APPROVALS. Each Party shall have obtained any and all Consents required for consummation of the Merger (other than those referred to in Section 9.1(b)) or for the preventing of any Default under any Contract or Permit of such Party which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a PSHC Material Adverse Effect or a Seacoast Material Adverse Effect, as applicable. No Consent so obtained which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner which in the reasonable judgment of the Board of Directors of Seacoast would so materially adversely affect the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such Party would not, in its reasonable judgment, have entered into this Agreement. (d) LEGAL PROCEEDINGS. No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Order (whether temporary, preliminary or permanent) or taken any other action which prohibits, restricts or makes illegal consummation of the transactions contemplated by this Agreement. (e) REGISTRATION STATEMENT. The Registration Statement shall be effective under the 1933 Act, no stop orders suspending the effectiveness of the Registration Statement shall have been issued, no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been initiated and be continuing, and all necessary approvals under state securities Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the shares of Seacoast Common Stock issuable pursuant to the Merger shall have been received. (f) SHARE LISTING. The shares of Seacoast Common Stock issuable pursuant to the Merger shall have been approved for listing on the Nasdaq National Market. (g) POOLING LETTERS. Each of the Parties shall have received letters, dated as of the date of filing of the Registration Statement with the SEC and as of the Effective Time, addressed to Seacoast, in form and substance reasonably acceptable to Seacoast, from Arthur Andersen LLP to the effect that the 33 Merger will qualify for pooling-of-interests accounting treatment. Each of the Parties also shall have received letters, dated as of the date of filing of the Registration Statement with the SEC and as of the Effective Time, addressed to Seacoast, in form and substance reasonably acceptable to Seacoast, from KPMG Peat Marwick to the effect that such firm is not aware of any matters relating to PSHC and its Subsidiaries which would preclude the Merger from qualifying for pooling-of-interests accounting treatment. (h) TAX MATTERS. Each Party shall have received a written opinion of counsel from Alston & Bird, in form reasonably satisfactory to such Parties (the "Tax Opinion"), to the effect that (i) the Merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, (ii) the exchange in the Merger of PSHC Common Stock for Seacoast Common Stock will not give rise to gain or loss to the shareholders of PSHC with respect to such exchange (except to the extent of any cash received), and (iii) none of PSHC or Seacoast will recognize gain or loss as a consequence of the Merger (except for amounts resulting from any required change in accounting methods and any income and deferred gain recognized pursuant to Treasury regulations issued under Section 1502 of the Internal Revenue Code). In rendering such Tax Opinion, such counsel shall be entitled to rely upon representations of officers of PSHC and Seacoast reasonably satisfactory in form and substance to such counsel. 9.2 CONDITIONS TO OBLIGATIONS OF SEACOAST. The obligations of Seacoast to perform this Agreement and consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by Seacoast pursuant to Section 11.6(a): (a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section 9.2(a), the accuracy of the representations and warranties of PSHC set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Effective Time with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided that representations and warranties which are confined to a specified date shall speak only as of such date). The representations and warranties set forth in Section 5.3, 5.20, 5.21, and 5.22 shall be true and correct (except for inaccuracies which are de minimus in amount). There shall not exist inaccuracies in the representations and warranties of PSHC set forth in this Agreement (including the representations and warranties set forth in Sections 5.3, 5.20, 5.21, and 5.22) such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a PSHC Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to include such qualifications. (b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the agreements and covenants of PSHC to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time shall have been duly performed and complied with. (c) CERTIFICATES. PSHC shall have delivered to Seacoast (i) a certificate, dated as of the Effective Time and signed on its behalf by its chief executive officer and its chief financial officer, to the effect that the conditions set forth in Section 9.1 as relates to PSHC and in Section 9.2(a) and 9.2(b) have been satisfied, and (ii) certified copies of resolutions duly adopted by PSHC's Board of Directors and shareholders evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as Seacoast and its counsel shall request. (d) OPINION OF COUNSEL. Seacoast shall have received an opinion of Gunster, Yoakley, Valdes-Fauli & Stewart, P.A, counsel to PSHC, dated as of the Closing, in form reasonably satisfactory to Seacoast, as to the matters set forth in Exhibit 3. (e) ACCOUNTANT'S LETTERS. Seacoast shall have received from KPMG Peat Marwick letters dated not more than five days prior to (i) the date of the Joint Proxy Statement and (ii) the Effective Time, 34 with respect to certain financial information regarding PSHC, in form and substance reasonably satisfactory to Seacoast, which letters shall be based upon customary specified procedures undertaken by such firm in accordance with Statement of Auditing Standard Nos. 71, 72 and 75. (f) AFFILIATES' AGREEMENTS. Seacoast shall have received from each affiliate of PSHC the affiliates letter referred to in Section 8.13, to the extent necessary to assure in the reasonable judgment of Seacoast that the transactions contemplated hereby will qualify for pooling-of-interests accounting treatment. (g) SHAREHOLDERS' EQUITY. PSHC's shareholders' equity as of the Closing shall not be less than PSHC's shareholders' equity as of December 31, 1996, excluding for purposes of the calculation of such shareholders' equity the effects of (i) all costs, fees and charges, including fees and charges of PSHC's accountants, counsel and financial advisors, whether or not accrued or paid, that are related to the transactions contemplated by this Agreement not to exceed $200,000 in the aggregate, (ii) all net charges resulting from the application of FASB Statement No. 115 with respect to unrealized securities gains and losses, and (iii) any reductions in PSHC's shareholders' equity resulting from any actions or changes in policies of PSHC taken at the request of Seacoast, including those described in Section 8.16 and (iv) the effect on or after the Effective Time, as Seacoast may determine, of the PSHC and/or PSNB data processing agreements as shown in Section 9.2(g) of the PSHC Disclosure Memorandum. (h) DIRECTOR'S AGREEMENTS. Seacoast shall have received from each director of PSHC the Director's Agreement set forth hereto at Exhibit 4. (i) CLAIMS LETTER. Seacoast shall have received from each director and officer of PSHC the Claims Letter set forth hereto at Exhibit 5. 9.3 CONDITIONS TO OBLIGATIONS OF PSHC. The obligations of PSHC to perform this Agreement and consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by PSHC pursuant to Section 11.6(b): (a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section 9.3(a), the accuracy of the representations and warranties of Seacoast set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Effective Time with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided that representations and warranties which are confined to a specified date shall speak only as of such date). There shall not exist inaccuracies in the representations and warranties of Seacoast set forth in this Agreement such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a Seacoast Material Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties which are qualified by references to "material" or "Material Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to include such qualifications. (b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the agreements and covenants of Seacoast to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time shall have been duly performed and complied with in all material respects. (c) CERTIFICATES. Seacoast shall have delivered to PSHC (i) a certificate, dated as of the Effective Time and signed on its behalf by its chief executive officer and its chief financial officer, to the effect that the conditions set forth in Section 9.1 as relates to Seacoast and in Section 9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of resolutions duly adopted by Seacoast's Board of Directors and shareholders evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as PSHC and its counsel shall request. 35 (d) OPINION OF COUNSEL. PSHC shall have received an opinion of Alston & Bird, counsel to Seacoast, dated as of the Effective Time, in form reasonably acceptable to PSHC, as to the matters set forth in Exhibit 6. (e) FAIRNESS OPINION. PSHC shall have received from Austin Associates, Inc. a letter, dated not more than five business days prior to the date of the Proxy Statement, to the effect that, in the opinion of such firm, the consideration to be received by PSHC shareholders in connection with the Merger is fair, from a financial point of view, to such shareholders. ARTICLE 10 TERMINATION 10.1 TERMINATION. Notwithstanding any other provision of this Agreement, and notwithstanding the approval of this Agreement by the shareholders of PSHC and Seacoast or both, this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time: (a) By mutual consent of Seacoast and PSHC; or (b) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a breach by the other Party of any representation or warranty contained in this Agreement which cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach and which breach is reasonably likely, in the opinion of the non-breaching Party, to have, individually or in the aggregate, a PSHC Material Adverse Effect or a Seacoast Material Adverse Effect, as applicable, on the breaching Party; or (c) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any covenant or agreement contained in this Agreement which cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach; or (d) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event (i) any Consent of any Regulatory Authority required for consummation of the Merger and the other transactions contemplated hereby shall have been denied by final nonappealable action of such authority or if any action taken by such authority is not appealed within the time limit for appeal, or (ii) the shareholders of PSHC or Seacoast fail to vote their approval of the matters relating to this Agreement and the transactions contemplated hereby at the Shareholders' Meetings where such matters were presented to such shareholders for approval and voted upon; or (e) By either Party in the event that the Merger shall not have been consummated by August 31, 1997, if the failure to consummate the transactions contemplated hereby on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to this Section 10.1(e); or (f) By either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event that any of the conditions precedent to the obligations of such Party to consummate the Merger cannot be satisfied or fulfilled by the date specified in Section 10.1(e); or 36 (g) By Seacoast, in the event that the Board of Directors of PSHC shall have failed to reaffirm its approval of the Merger and the transactions contemplated by this Agreement (to the exclusion of any other Acquisition Proposal), or shall have resolved not to reaffirm the Merger, or shall have affirmed, recommended or authorized entering into any other Acquisition Proposal or other transaction involving a merger, share exchange, consolidation or transfer of substantially all of the Assets of PSHC. (h) By PSHC in the event that the Purchase Price Per Share shall be less than $24.62. 10.2 EFFECT OF TERMINATION. In the event of the termination and abandonment of this Agreement pursuant to Section 10.1, this Agreement shall become void and have no effect, except that (i) the provisions of this Section 10.2 and Article 11 and Sections 8.6(b) and 8.7 shall survive any such termination and abandonment, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c) or 10.1(f) shall not relieve the breaching Party from Liability for an uncured willful breach of a representation, warranty, covenant, or agreement giving rise to such termination. 10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective representations, warranties, obligations, covenants, and agreements of the Parties shall not survive the Effective Time except this Section 10.3 and Articles 1, 2, 3, 4 and 11 and Sections 8.7, 8.13, 8.14, 8.15 and 8.17. ARTICLE 11 MISCELLANEOUS 11.1 DEFINITIONS. (a) Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings: "1933 ACT" shall mean the Securities Act of 1933, as amended. "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended. "ACQUISITION PROPOSAL" with respect to a Party shall mean any tender offer or exchange offer or any proposal for a merger, acquisition of all of the stock or assets of, or other business combination involving the acquisition of such Party or any of its Subsidiaries or the acquisition of a substantial equity interest in, or a substantial portion of the assets of, such Party or any of its Subsidiaries. "AFFILIATE" of a Person shall mean: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial owner of any 10% or greater equity or voting interest of such Person; or (iii) any other Person for which a Person described in clause (ii) acts in any such capacity. "AGREEMENT" shall mean this Agreement and Plan of Merger, including the Exhibits delivered pursuant hereto and incorporated herein by reference. "ARTICLES OF MERGER" shall mean the Articles of Merger to be executed by Seacoast and filed with the Secretary of State of the State of Florida relating to the Merger as contemplated by Section 1.1. "ASSETS" of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, 37 accrued or contingent, or otherwise relating to or utilized in such Person's business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located. "BHC ACT" shall mean the federal Bank Holding Company Act of 1956, as amended. "CLOSING DATE" shall mean the date on which the Closing occurs. "CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality Agreement, dated May 10, 1996, between PSHC and Seacoast. "CONSENT" shall mean any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order, or Permit. "CONTRACT" shall mean any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, obligation, plan, practice, restriction, understanding, or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, Assets or business. "DEFAULT" shall mean (i) any breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right of any Person to exercise any remedy or obtain any relief under, terminate or revoke, suspend, cancel, or modify or change the current terms of, or renegotiate, or to accelerate the maturity or performance of, or to increase or impose any Liability under, any Contract, Law, Order, or Permit. "ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface, or subsurface strata) and which are administered, interpreted, or enforced by the United States Environmental Protection Agency and state and local agencies with jurisdiction over, and including common law in respect of, pollution or protection of the environment, including the Comprehensive Environmental Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions, discharges, releases, or threatened releases of any Hazardous Material, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of any Hazardous Material. "EQUITY RIGHTS" shall mean all arrangements, calls, commitments, Contracts, options, rights to subscribe to, scrip, understandings, warrants, or other binding obligations of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of a Person or by which a Person is or may be bound to issue additional shares of its capital stock or other Equity Rights. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXHIBITS" 1 through 6, inclusive, shall mean the Exhibits so marked, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached hereto. "FHLMC" shall mean the Federal Home Loan Mortgage Corporation "FNMA" shall mean the Federal National Mortgage Association. 38 "FBCA" shall mean the Florida Business Corporation Act. "FIRST NATIONAL" shall mean First National Bank & Trust Company of the Treasure Coast, a national banking association and a Seacoast Subsidiary. "GAAP" shall mean generally accepted accounting principles, consistently applied during the periods involved. "HAZARDOUS MATERIAL" shall mean (i) any hazardous substance, hazardous material, hazardous waste, regulated substance, or toxic substance (as those terms are defined by any applicable Environmental Laws) and (ii) any chemicals, pollutants, contaminants, petroleum, petroleum products, or oil (and specifically shall include asbestos requiring abatement, removal, or encapsulation pursuant to the requirements of governmental authorities and any polychlorinated biphenyls). "HOLA" shall mean the Home Owners' Loan Act of 1933, as amended. "HSR ACT" shall mean Section 7A of the Clayton Act, as added by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks, service marks, service names, trade names, applications therefor, technology rights and licenses, computer software (including any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions, and other intellectual property rights. "INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. "JOINT PROXY STATEMENT" shall mean the proxy statement used by PSHC and Seacoast to solicit the approval of their respective shareholders of the transactions contemplated by this Agreement, which shall include the prospectus of Seacoast relating to the issuance of the Seacoast Common Stock to holders of PSHC Common Stock. "KNOWLEDGE" as used with respect to a Person (including references to such Person being aware of a particular matter) shall mean those facts that are known or should reasonably have been known after due inquiry by the chairman, president, chief financial officer, chief accounting officer, chief operating officer, chief credit officer, general counsel, any assistant or deputy general counsel, or any senior, executive or other vice president of such Person and the knowledge of any such persons obtained or which would have been obtained from a reasonable investigation. "LAW" shall mean any code, law (including common law), ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities, or business, including those promulgated, interpreted or enforced by any Regulatory Authority. "LIABILITY" shall mean any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise. "LIEN" shall mean any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature 39 whatsoever of, on, or with respect to any property or property interest, other than (i) Liens for current property Taxes not yet due and payable, (ii) for depository institution Subsidiaries of a Party, pledges to secure deposits and other Liens incurred in the ordinary course of the banking business, (iii) Liens which do not materially impair the use of or title to the Assets subject to such Lien, and which are disclosed in Section 11.1 of the PSHC Disclosure Memorandum or Seacoast Disclosure Memorandum, as applicable. "LITIGATION" shall mean any action, arbitration, cause of action, claim, complaint, criminal prosecution, governmental or other examination or investigation, hearing, administrative or other proceeding relating to or affecting a Party, its business, its Assets (including Contracts related to it), or the transactions contemplated by this Agreement, but shall not include regular, periodic examinations of depository institutions and their Affiliates by Regulatory Authorities. "MATERIAL" for purposes of this Agreement shall be determined in light of the facts and circumstances of the matter in question; provided that any specific monetary amount stated in this Agreement shall determine materiality in that instance. "NASD" shall mean the National Association of Securities Dealers, Inc. "NASDAQ NATIONAL MARKET" shall mean the National Market System of the National Association of Securities Dealers Automated Quotations System. "OPERATING PROPERTY" shall mean any property owned, leased, or operated by the Party in question or by any of its Subsidiaries or in which such Party or Subsidiary holds a security interest or other interest (including an interest in a fiduciary capacity), and, where required by the context, includes the owner or operator of such property, but only with respect to such property. "ORDER" shall mean any administrative decision or award, decree, injunction, judgment, order, quasi- judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency, or Regulatory Authority. "PARTICIPATION FACILITY" shall mean any facility or property in which the Party in question or any of its Subsidiaries participates in the management and, where required by the context, said term means the owner or operator of such facility or property, but only with respect to such facility or property. "PARTY" shall mean either PSHC or Seacoast, and "PARTIES" shall mean both PSHC and Seacoast. "PERMIT" shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets, or business. "PERSON" shall mean a natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any person acting in a representative capacity. "PSHC COMMON STOCK" shall mean the $0.01 par value common stock of PSHC. "PSHC DISCLOSURE MEMORANDUM" shall mean the written information entitled "Port St. Lucie National Bank Holding Corp. Disclosure Memorandum" delivered prior to the date of this Agreement to Seacoast describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being 40 made. Information disclosed with respect to one Section shall not be deemed to be disclosed for purposes of any other Section not specifically referenced with respect thereto. "PSHC ENTITIES" shall mean, collectively, PSHC and all PSHC Subsidiaries. "PSHC FINANCIAL STATEMENTS" shall mean (i) the consolidated statements of condition (including related notes and schedules, if any) of PSHC as of September 30, 1996, and as of December 31,1995 and 1994, and the related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) for the nine months ended September 30, 1996, and for each of the three fiscal years ended December 31,1995, 1994 and 1993, as filed by PSHC in SEC Documents, and (ii) the consolidated statements of condition of PSHC (including related notes and schedules, if any) and related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) included in SEC Documents filed with respect to periods ended subsequent to September 30, 1996. "PSHC MATERIAL ADVERSE EFFECT" shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has a material adverse impact on (i) the financial position, business, or results of operations of PSHC and its Subsidiaries, taken as a whole, or (ii) the ability of PSHC to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement, provided that "Material Adverse Effect" shall not be deemed to include the impact of (a) changes in banking and similar Laws of general applicability or interpretations thereof by courts or governmental authorities, (b) changes in generally accepted accounting principles or regulatory accounting principles generally applicable to banks and their holding companies, (c) actions and omissions of PSHC (or any of its Subsidiaries) taken with the prior informed written Consent of Seacoast in contemplation of the transactions contemplated hereby, and (d) the direct effects of compliance with this Agreement on the operating performance of PSHC, including expenses incurred by PSHC in consummating the transactions contemplated by this Agreement. "PSHC STOCK PLANS" shall mean the existing stock option, stock purchase and other stock-based plans of PSHC. "PSHC SUBSIDIARIES" shall mean the Subsidiaries of PSHC, which shall include the PSHC Subsidiaries described in Section 5.4 and any corporation, bank, savings association, or other organization acquired as a Subsidiary of PSHC in the future and held as a Subsidiary by PSHC at the Effective Time. "PSN BANK" shall mean Port St. Lucie National Bank, a national banking association and a PSHC Subsidiary. "PURCHASE PRICE PER SHARE" shall mean (i) the sum of (x) the average of the closing prices on the Nasdaq National Market as reported by The Wall Street Journal of Seacoast Common Stock for the 20 trading days preceding the fifth trading day preceding the Closing Date (the "Seacoast Stock Price") multiplied by 900,000 and (y) 1,242,953 (ii) divided by the number of shares of PSHC Common Stock plus the number of shares of PSHC Common Stock subject to PSHC Options, including PSHC Warrants, outstanding at the Effective Time. "REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-4, or other appropriate form, including any pre-effective or post-effective amendments or supplements thereto, filed with the SEC by Seacoast under the 1933 Act with respect to the shares of Seacoast Common Stock to be issued to the shareholders of PSHC in connection with the transactions contemplated by this Agreement. "REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the NASD, the Federal Trade Commission, the United States Department of Justice, the Board of the Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and all 41 other federal, state, county, local or other governmental or regulatory agencies, authorities (including self- regulatory authorities), instrumentalities, commissions, boards or bodies having jurisdiction over the Parties and their respective Subsidiaries. "REPRESENTATIVE" shall mean any investment banker, financial advisor, attorney, accountant, consultant, or other representative engaged by a Person. "SEACOAST CAPITAL STOCK" shall mean, collectively, the Seacoast Common Stock, the Seacoast Preferred Stock and any other class or series of capital stock of Seacoast. "SEACOAST COMMON STOCK" shall mean the $0.10 par value Class A common stock of Seacoast. "SEACOAST DISCLOSURE MEMORANDUM" shall mean the written information entitled "Seacoast Banking Corporation of Florida Disclosure Memorandum" delivered prior to the date of this Agreement to PSHC describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being made. Information disclosed with respect to one Section shall not be deemed to be disclosed for purposes of any other Section not specifically referenced with respect thereto. "SEACOAST ENTITIES" shall mean, collectively, Seacoast and all Seacoast Subsidiaries. "SEACOAST FINANCIAL STATEMENTS" shall mean (i) the consolidated statements of condition (including related notes and schedules, if any) of Seacoast as of September 30, 1996, and as of December 31, 1995 and 1994, and the related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) for the nine months ended September 30, 1996, and for each of the three fiscal years ended December 31, 1995, 1994 and 1993, as filed by Seacoast in SEC Documents, and (ii) the consolidated statements of condition and balance sheets of Seacoast (including related notes and schedules, if any) and related statements of income, changes in shareholders' equity, and cash flows (including related notes and schedules, if any) included in SEC Documents filed with respect to periods ended subsequent to September 30, 1996. "SEACOAST MATERIAL ADVERSE EFFECT" shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has a material adverse impact on (i) the financial position, business, or results of operations of Seacoast and its Subsidiaries, taken as a whole, or (ii) the ability of Seacoast to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement, provided that "Material Adverse Effect" shall not be deemed to include the impact of (a) changes in banking and similar Laws of general applicability or interpretations thereof by courts or governmental authorities, (b) changes in generally accepted accounting principles or regulatory accounting principles generally applicable to banks and their holding companies, (c) actions and omissions of Seacoast (or any of its Subsidiaries) taken with the prior informed written Consent of PSHC in contemplation of the transactions contemplated hereby, and (d) the direct effects of compliance with this Agreement on the operating performance of Seacoast, including expenses incurred by Seacoast in consummating the transactions contemplated by this Agreement. "SEACOAST PREFERRED STOCK" shall mean the $1.00 par value preferred stock of Seacoast. "SEACOAST STOCK PLANS" shall mean the existing stock option and other stock-based compensation plans of Seacoast designated as follows: (i) Seacoast Banking Corporation of Florida 1991 Stock Option and Stock Appreciation Rights Plan and (ii) Seacoast Banking Corporation of Florida 1996 Long-term Incentive Plan. 42 "SEACOAST STOCK PRICE" shall mean the average of the closing prices on the Nasdaq National Market as reported by The Wall Street Journal of Seacoast Common Stock for the 20 trading days preceding the fifth trading day preceding the Closing Date. "SEACOAST SUBSIDIARIES" shall mean the Subsidiaries of Seacoast, which shall include the Seacoast Subsidiaries described in Section 6.4 and any corporation, bank, savings association, or other organization acquired as a Subsidiary of Seacoast in the future and held as a Subsidiary by Seacoast at the Effective Time. "SEC DOCUMENTS" shall mean all forms, proxy statements, registration statements, reports, schedules, and other documents filed, or required to be filed, by a Party or any of its Subsidiaries with any Regulatory Authority pursuant to the Securities Laws. "SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules and regulations of any Regulatory Authority promulgated thereunder. "SHAREHOLDERS' MEETINGS" shall mean the respective meetings of the shareholders of PSHC and Seacoast to be held pursuant to Section 8.1, including any adjournment or adjournments thereof. "SIGNIFICANT SUBSIDIARY" shall mean any present or future consolidated Subsidiary of the Party in question, the assets of which constitute ten percent (10%) or more of the consolidated assets of such Party as reflected on such Party's consolidated statement of condition prepared in accordance with GAAP. "SUBSIDIARIES" shall mean all those corporations, associations, or other business entities of which the entity in question either (i) owns or controls 50% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 50% or more of the outstanding equity securities is owned directly or indirectly by its parent (provided, there shall not be included any such entity the equity securities of which are owned or controlled in a fiduciary capacity), (ii) in the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing member, or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof. "SURVIVING CORPORATION" shall mean Seacoast as the surviving corporation resulting from the Merger. "TAX RETURN" shall mean any report, return, information return, or other information required to be supplied to a taxing authority in connection with Taxes, including any return of an affiliated or combined or unitary group that includes a Party or its Subsidiaries. "TAX" or "TAXES" shall mean any federal, state, county, local, or foreign taxes, charges, fees, levies, imposts, duties, or other assessments, including income, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital stock, paid-up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposes or required to be withheld by the United States or any state, county, local or foreign government or subdivision or agency thereof, including any interest, penalties, and additions imposed thereon or with respect thereto. (b) The terms set forth below shall have the meanings ascribed thereto in the referenced sections: 43 Allowance Section 5.9 Bank Merger Section 1.4 Bank Plan Section 1.4 Closing Section 1.2 Counties Section 7.1 Effective Time Section 1.3 ERISA Affiliate Section 5.15(b) Exchange Agent Section 4.1 Exchange Ratio Section 3.1(b) Lower Threshold Price Section 3.1(b) Maximum Amount Section 8.15 Merger Section 1.1 PSHC Benefit Plans Section 5.15 PSHC Contracts Section 5.16 PSHC ERISA Plan Section 5.15 PSHC Options Section 3.6 PSHC Pension Plan Section 5.15 PSHC SEC Reports Section 5.5(a) Seacoast Benefit Plans Section 6.15 Seacoast Contracts Section 6.16 Seacoast ERISA Plan Section 6.15 Seacoast Pension Plan Section 6.15 Seacoast SEC Reports Section 6.5(a) Takeover Laws Section 5.21 Tax Opinion Section 9.1(h) Wholesale Mortgage Business Section 5.16
(c) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed followed by the words "without limitation." 11.2 EXPENSES. Except as otherwise provided in this Section 11.2, each of the Parties shall bear and pay all direct costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including filing, registration and application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and counsel, except that each of the Parties shall bear and pay one-half of the filing fees payable in connection with the Registration Statement and the Joint Proxy Statement and printing costs incurred in connection with the printing of the Registration Statement and the Joint Proxy Statement. 11.3 BROKERS AND FINDERS. Except for Austin Associates, Inc. as to PSHC and except for The Robinson-Humphrey Company as to Seacoast, each of the Parties represents and warrants that neither it nor any of its officers, directors, employees, or Affiliates has employed any broker or finder or incurred any Liability for any financial advisory fees, investment bankers' fees, brokerage fees, commissions, or finders' fees in connection with this Agreement or the transactions contemplated hereby. In the event of a claim by any broker or finder based upon his or its representing or being retained by or allegedly representing or being retained by PSHC or by Seacoast, each of PSHC and Seacoast, as the case may be, agrees to indemnify and hold the other Party harmless of and from any Liability in respect of any such claim. 11.4 ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this Agreement (including the documents and instruments referred to herein) constitutes the entire agreement between the Parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings 44 with respect thereto, written or oral (except, as to Section 8.6(b), for the Confidentiality Agreement). Nothing in this Agreement expressed or implied, is intended to confer upon any Person, other than the Parties or their respective successors, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, other than as provided in Sections 8.14 and 8.15. 11.5 AMENDMENTS. To the extent permitted by Law, this Agreement may be amended by a subsequent writing signed by each of the Parties upon the approval of each of the Parties, whether before or after shareholder approval of this Agreement has been obtained; provided, that after any such approval by the holders of PSHC Common Stock, there shall be made no amendment that reduces or modifies in any material respect the consideration to be received by holders of PSHC Common Stock; and further provided, that after any such approval by the holders of Seacoast Common Stock, the provisions of this Agreement relating to the manner or basis in which shares of PSHC Common Stock will be exchanged for shares of Seacoast Common Stock shall not be amended after the Shareholders' Meetings in a manner adverse to the holders of Seacoast Common Stock without any requisite approval of the holders of the issued and outstanding shares of Seacoast Common Stock entitled to vote thereon. 11.6 WAIVERS. (a) Prior to or at the Effective Time, Seacoast, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by PSHC, to waive or extend the time for the compliance or fulfillment by PSHC of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of Seacoast under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of Seacoast. (b) Prior to or at the Effective Time, PSHC, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by Seacoast, to waive or extend the time for the compliance or fulfillment by Seacoast of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of PSHC under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of PSHC. (c) The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. 11.7 ASSIGNMENT. Except as expressly contemplated hereby, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto (whether by operation of Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns. 11.8 NOTICES. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified mail, postage pre-paid, or by courier or overnight carrier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered: 45 PSHC: Port St. Lucie National Bank Holding Corp. 1100 S.W. St. Lucie West Boulevard Port St. Lucie, Florida 34986 Telecopy Number: (561) 878-5431 Attention: J. Hal Roberts, Jr. Copy to Counsel: Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. 777 South Flagler Drive Suite 500 East West Palm Beach, Florida 33401-6194 Telecopy Number: (561) 655-5677 Attention: Michael V. Mitrione, Esq. Seacoast: Seacoast Banking Corporation of Florida 815 Colorado Avenue P.O. Box 9012 Stuart, Florida 34995-9012 Telecopy Number: (561) 288-6012 Attention: Mr. Dennis S. Hudson, III Copy to Counsel: Alston & Bird One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30327 Telecopy Number: (404) 881-7777 Attention: Ralph F. MacDonald, III, Esq.
11.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the Laws of the State of Florida, without regard to any applicable conflicts of Laws. 11.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11.11 CAPTIONS; ARTICLES AND SECTIONS. The captions contained in this Agreement are for reference purposes only and are not part of this Agreement. Unless otherwise indicated, all references to particular Articles or Sections shall mean and refer to the referenced Articles and Sections of this Agreement. 11.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party, whether under any rule of construction or otherwise. No party to this Agreement shall be considered the draftsman. The parties acknowledge and agree that this Agreement has been reviewed, negotiated, and accepted by all parties and their attorneys and shall be construed and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of all parties hereto. 11.13 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in 46 any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 11.14 SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 47 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its duly authorized officers as of the day and year first above written. SEACOAST BANKING CORPORATION OF FLORIDA By: /s/ Dennis S. Hudsen, III -------------------------------- President PORT ST. LUCIE NATIONAL BANK HOLDING CORP. By: /s/ J. HAL ROBERTS, JR. --------------------------------- President 48
TABLE OF CONTENTS Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . 1.1 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Time and Place of Closing . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Bank Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE 2 - TERMS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE 3 - MANNER OF CONVERTING SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Anti-Dilution Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Shares Held by PSHC or Seacoast . . . . . . . . . . . . . . . . . . . . . 3.4 Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Conversion of Stock Options; Restricted Stock . . . . . . . . . . . . . . ARTICLE 4 - EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Rights of Former PSHC Shareholders . . . . . . . . . . . . . . . . . . . . ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF PSHC . . . . . . . . . . . . . . . . . . . . 5.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . 5.2 Authority of PSHC; No Breach By Agreement . . . . . . . . . . . . . . . . 5.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 PSHC Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . 5.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 5.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . 5.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . 5.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . 5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.15 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 5.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.17 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.18 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.19 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . 5.20 Accounting, Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . 5.21 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.22 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.23 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . 5.24 Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF Seacoast . . . . . . . . . . . . . . . . . . 6.1 Organization, Standing, and Power . . . . . . . . . . . . . . . . . . . . 6.2 Authority; No Breach By Agreement . . . . . . . . . . . . . . . . . . . . 6.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 Seacoast Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . .
49 6.6 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 6.7 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . 6.9 Allowance for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . 6.10 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.14 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.15 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.16 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . 6.17 Accounting, Tax and Regulatory Matters . . . . . . . . . . . . . . . . . . ARTICLE 7 - CONDUCT OF BUSINESS PENDING CONSUMMATION . . . . . . . . . . . . . . . . . . . 7.1 Affirmative Covenants of PSHC . . . . . . . . . . . . . . . . . . . . . . 7.2 Negative Covenants of PSHC . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Covenants of Seacoast . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 Adverse Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . 7.5 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ARTICLE 8 - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 Registration Statement; Proxy Statement; Shareholder Approval . . . . . . 8.2 Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 Filings with State Offices . . . . . . . . . . . . . . . . . . . . . . . . 8.5 Agreement as to Efforts to Consummate . . . . . . . . . . . . . . . . . . 8.6 Investigation and Confidentiality . . . . . . . . . . . . . . . . . . . . 8.7 Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 Accounting and Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . 8.10 State Takeover Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11 Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.12 PSHC Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.13 Agreements of Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 8.14 Employee Benefits and Contracts . . . . . . . . . . . . . . . . . . . . . 8.15 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.16 Certain Policies of PSHC . . . . . . . . . . . . . . . . . . . . . . . . . 8.17 Nomination and Election of Directors . . . . . . . . . . . . . . . . . . . ARTICLE 9 - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE . . . . . . . . . . . . . . . 9.1 Conditions to Obligations of Each Party . . . . . . . . . . . . . . . . . 9.2 Conditions to Obligations of Seacoast . . . . . . . . . . . . . . . . . . 9.3 Conditions to Obligations of PSHC . . . . . . . . . . . . . . . . . . . . ARTICLE 10 - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 Non-Survival of Representations and Covenants . . . . . . . . . . . . . . ARTICLE 11 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.6 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50 11.11 Captions; Articles and Sections . . . . . . . . . . . . . . . . . . . . . 11.12 Interpretations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.13 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 11.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51 LIST OF EXHIBITS
Exhibit Number Description - -------------- ----------- 1. Bank Plan of Merger. (Section 1.4). 2. Form of agreement of affiliates of PSHC. (Section 8.13, 9.2(g)). 3. Matters as to which Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. will opine. (Section 9.2(d)). 4. Form of Director's Agreement. (Section 9.2(h)). 5. Claims Letter. (Section 9.2(i)). 6. Matters as to which Alston & Bird will opine. (Section 9.3(d)).
52 EXHIBIT 1 TO AGREEMENT AND PLAN OF MERGER PLAN OF MERGER OF PORT ST. LUCIE NATIONAL BANK WITH AND INTO FIRST NATIONAL BANK & TRUST COMPANY OF THE TREASURE COAST This Plan of Merger ("Plan of Merger") is made and entered into as of February 19, 1997, by and between PORT ST. LUCIE NATIONAL BANK, a national banking association organized and existing under the laws of the United States with its main office located in Port St. Lucie, Florida ("PSNB"), and FIRST NATIONAL BANK & TRUST COMPANY OF THE TREASURE COAST, a national banking association organized and existing under the laws of the United States with its main office located in Stuart, Florida ("FNB"). FNB is a wholly-owned subsidiary of Seacoast Banking Corporation of Florida, a corporation organized and existing under the laws of the State of Florida, with its principal office located in Stuart, Florida ("Seacoast"). PSNB is a wholly-owned subsidiary of Port St. Lucie National Bank Holding Corporation, a corporation organized and existing under the laws of the State of Florida, with its principal office in Port St. Lucie, Florida ("PSHC"). Prior to the execution and delivery of this Plan of Merger, Seacoast and PSHC have entered into a Agreement and Plan of Merger (the "Parent Agreement") pursuant to which PSHC would merge with and into Seacoast. The Parent Agreement also contemplates that PSNB will be merged with and into FNB. The Boards of Directors of PSNB and FNB are of the opinion that the bests interests of their respective banks would be served if PSNB is merged with and into FNB on the terms and conditions provided in this Plan of Merger. NOW, THEREFORE, in consideration of the covenants and agreements contained herein, PSNB and FNB hereby make, adopt and approve this Plan of Merger in order to set forth the terms and conditions for the merger of PSNB into FNB. ARTICLE ONE DEFINITIONS Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings: 1.1 "PSNB Common Stock" shall mean the $5.00 par value common stock of PSNB. 1.2 "Bank Merger" shall refer to the merger of PSNB with and into FNB as provided in Section 2.1 of this Plan of Merger. 1.3 "FNB Common Stock" shall mean the $10.00 par value common stock of FNB. 1.4 "Certificate of Merger" shall mean the Certificate of Merger to be issued by the Office of the Comptroller of the Currency of the United States approving the Bank Merger. 1.5 "Effective Time" shall mean the date and time on which the Bank Merger becomes effective as specified in the Certificate of Merger. 53 ARTICLE TWO TERMS OF BANK MERGER 2.1 Merger. Subject to the terms and conditions set forth in this Plan of Merger, at the Effective Time, PSNB shall be merged with and into FNB under the Charter and Articles of Association of FNB pursuant to the provisions of and with the effect provided in Title 12, United States Code, Section 215a. FNB shall be the surviving bank and the receiving association resulting from the Bank Merger and shall continue to conduct its business under the name "FIRST NATIONAL BANK & TRUST COMPANY OF THE TREASURE COAST." The Bank Merger shall be consummated pursuant to the terms of this Plan of Merger, which has been approved and adopted by the respective Boards of Directors and shareholders of FNB and PSNB. 2.2 Method of Converting Shares. All of the shares of FNB Common Stock issued and outstanding at the Effective Time shall remain issued and outstanding after the Effective Time and shall be unaffected by the Bank Merger. At the Effective Time, the certificates representing all of the issued and outstanding shares of PSNB Common Stock shall be surrendered to FNB for cancellation and no consideration shall be issued in exchange therefor. ARTICLE THREE EFFECT OF BANK MERGER 3.1 Business of FNB. The business of FNB from and after the Effective Time shall continue to be that of a national banking association. The business shall be conducted from its main office located in Stuart, Florida and at its legally established branches, which shall also include the main office and all branches, whether in operation or approved but unopened, of PSNB at the Effective Time. 3.2 Assumption of Rights. At the Effective Time, the separate existence and corporate organization of PSNB shall be merged into and continued in FNB, as the surviving bank and receiving association of the Bank Merger. All rights, franchises and interests of PSNB and FNB in and to every type of property (real, personal and mixed), and all choses in action of PSNB and FNB shall be transferred to and vested in FNB as the surviving bank and receiving association by virtue of the Bank Merger without any deed or other transfer. FNB, upon consummation of the Bank Merger and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver and committee of estates of lunatics, and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises, and interests were held or enjoyed by either of PSNB or by FNB at the Effective Time, subject to the conditions imposed by Title 12, United States Code, Section 215a. 3.3 Assumption of Liabilities. All liabilities and obligations of both of PSNB and of FNB of every kind and description shall be assumed by FNB as the surviving bank and receiving association by virtue of the Bank Merger, and FNB shall be bound thereby in the same manner and to the same extent that either of PSNB or FNB was so bound at the Effective Time. 3.4 Articles of Association. At the Effective Time, following consummation of the Bank Merger, the Articles of Association of FNB shall be in the form set forth in Annex A to this Plan of Merger, as modified only by such amendments as may be adopted by the sole shareholder of FNB prior to the Effective Time. The Bylaws of FNB shall be in the form set forth in Annex B to this Plan of Merger, as modified only by such amendments as may be adopted by the sole shareholder of FNB prior to the Effective Time. 3.5 Officers, Employees and Directors. The officers and employees of FNB immediately following the Effective Time shall include, among others, the officers and employees of FNB and PSNB immediately prior to the Effective Time. The Board of Directors of FNB immediately following the Effective Time shall consist of the persons named in Annex C to this Plan of Merger, including two persons from FNB's Board of 54 Directors, each of whom shall serve until his respective successor is elected and qualified or until a new Board of Directors is elected as provided in the Articles of Association or Bylaws of FNB or as provided by law. All directors of PSNB as of the Closing who do not become directors of FNB shall serve as members of FNB's St. Lucie Advisory Board, and shall have such rights and powers as are set out in FNB's Bylaws, as amended form time to time, and shall receive fees for their service on such advisory board consistent with the fees paid by FNB to members of its other advisory boards. 3.6 Capital Stock of FNB. The capital stock of FNB upon completion of the Bank Merger shall be approximately $14.5 million, consisting of 2,000,000 authorized shares and 1,450,000 issued and outstanding shares of common stock of a par value of $10 per share. In addition, FNB shall have a surplus of approximately $18 million and undivided profits, including capital reserves, of approximately $38 million adjusted, however, for earnings and expenses between December 31, 1996 and the Effective Time. ARTICLE FOUR EFFECTIVENESS 4.1 Conditions Precedent. Consummation of the Bank Merger is conditioned upon (i) the Closing of the transactions contemplated by the Parent Agreement and (ii) receipt of all approvals, consents, waivers, and other clearances of all federal and state regulatory authorities having jurisdiction over the transactions contemplated by this Plan of Merger. 4.2 Termination. This Plan of Merger may be terminated at any time prior to the Effective Time by the parties hereto after termination of the Parent Agreement in accordance with the provisions of Section 10.1 thereof. 4.3 Effectiveness. Subject to the satisfaction of all requirements of applicable laws and regulations and the terms and conditions set forth herein, the Bank Merger contemplated by this Plan of Merger shall be and become effective at the time and on the date specified in the Certificate of Merger. ARTICLE FIVE REPRESENTATIONS 5.1 Organization, Standing, and Power. PSNB is a bank duly organized and validly existing under the Laws of the State of Florida, and has the power and authority to carry on its business as now conducted and to own, lease and operate its Assets. 5.2 Authority; No Breach By Agreement. (a) PSNB has the corporate power and authority necessary to execute, deliver, and perform its obligations under this Bank Plan of Merger and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Bank Plan of Merger and the consummation of the transactions contemplated herein have been duly and validly authorized by all necessary corporate action in respect thereof on the part of PSNB. Subject to such requisite shareholder approval, this Agreement represents a legal, valid, and binding obligation of PSNB, enforceable against PSNB in accordance with its terms (except in all cases as such enforceability may be limited by applicable, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). (b) Neither the execution and delivery of this Bank Plan of Merger by PSNB, nor the consummation by PSNB of the transactions contemplated hereby, nor compliance by PSNB with any of the 55 provisions hereof, will except as specifically disclosed in the PSHC Disclosure Memorandum delivered pursuant to the Parent Agreement (i) conflict with or result in a breach of any provision of PSNB's Articles of Incorporation or Bylaws, (ii) constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any PSHC Company under, any Contract or Permit of any PSHC Company, or (iii) subject to receipt of the requisite approvals referred to in Section 4.1 of this Bank Plan of Merger, violate any Law or Order applicable to any PSHC Company or any of their respective material Assets. (c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, or under, and other than Consents, filings, or notifications which, if not obtained or made, are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on PSNB, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by PSNB of the Merger and the other transactions contemplated in this Bank Plan of Merger. 5.3 Capital Stock. (a) The authorized capital stock of PSNB consists of 5,000,000 shares of PSNB Common Stock, of which 5,000,000 shares are issued and outstanding as of the date of this Bank Plan of Merger and not more than 5,000,000 shares will be issued and outstanding at the Effective Time. All of the issued and outstanding shares of capital stock of PSHC are duly and validly issued and outstanding and are fully paid and nonassessable. None of the outstanding shares of capital stock of PSNB has been issued in violation of any preemptive rights of the current or past shareholders of PSNB. (b) Except as set forth in Section 5.3(a) hereof, there are no shares of capital stock or other equity securities of PSNB outstanding and no outstanding Rights relating to the capital stock of PSNB. ARTICLE SIX MISCELLANEOUS 6.1 Amendment. To the extent permitted by law, this Plan of Merger may be amended by a subsequent written instrument upon the approval of the Boards of Directors of each of the parties hereto and upon execution of such instrument by the duly authorized officers of each and by a majority of the Boards of Directors of PSNB and FNB; provided that no amendment to this Plan of Merger shall modify the requirements of regulatory approval as set forth in Section 4.1 hereof. 6.2 Governing Law. This Plan of Merger shall be governed by and construed in accordance with the laws of the State of Florida, except to the extent that the federal laws of the United States of America apply to consummation of the Bank Merger. 6.3 Headings. The headings in this Plan of Merger are for convenience only and shall not affect the construction or interpretation of this Plan of Merger. 6.4 Counterparts. This Plan of Merger may be executed in two or more counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute one and the same instrument. 56 IN WITNESS WHEREOF, PSNB and FNB has caused this Plan of Merger to be executed on its behalf by its officers thereunto duly authorized and by a majority of its Board of Directors, all as of the day and year first above written. ATTEST: FIRST NATIONAL BANK & TRUST COMPANY OF THE TREASURE COAST By: By: ------------------------- ------------------------------------ Title: Title: [BANK SEAL] ATTEST: PORT ST. LUCIE NATIONAL BANK By: By: ------------------------- ------------------------------------ Title: Title: [BANK SEAL] 57 EXHIBIT 2 TO AGREEMENT AND PLAN OF MERGER FORM OF AFFILIATE AGREEMENT Seacoast Banking Corporation of Florida P.O. Box 9012 Stuart, Florida 34995-9012 Attention: Dennis S. Hudson, III Executive Vice President Gentlemen: The undersigned is a shareholder of Port St. Lucie National Bank Holding Corp. ("PSHC"), a corporation organized and existing under the laws of the State of Florida, and will become a shareholder of Seacoast Banking Corporation of Florida ("Seacoast"), a corporation organized and existing under the laws of the State of Florida, pursuant to the transactions described in the Agreement and Plan of Merger, dated as of February 19, 1997 (the "Agreement"), by and between Seacoast and PSHC. Under the terms of the Agreement, PSHC will be merged into and with Seacoast (the "Merger"), and the shares of the $0.01 par value common stock of PSHC ("PSHC Common Stock") will be converted into and exchanged for shares of the $0.10 par value Class A common stock of Seacoast ("Seacoast Common Stock"). This Affiliate Agreement represents an agreement between the undersigned and Seacoast regarding certain rights and obligations of the undersigned in connection with the shares of Seacoast to be received by the undersigned as a result of the Merger. In consideration of the Merger and the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned and Seacoast hereby agree as follows: 1. Affiliate Status. The undersigned understands and agrees that as to PSHC he is an "affiliate" under Rule 145(c) as defined in Rule 405 of the Rules and Regulations of the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended ("1933 Act"), and the undersigned anticipates that he will be such an "affiliate" at the time of the Merger. 2. Initial Restriction on Disposition. The undersigned agrees that he will not sell, transfer, or otherwise dispose of his interests in, or reduce his risk relative to, any of the shares of Seacoast Common Stock into which his shares of PSHC Common Stock are converted upon consummation of the Merger until such time that the requirements of SEC Accounting Series Release Nos. 130 and 135 ("ASR 130 and 135") have been met. The undersigned understands that ASR 130 and 135 relate to publication of financial results of post-Merger combined operations of Seacoast and PSHC. Seacoast agrees that it will publish such results within 45 days after the end of the first fiscal quarter of Seacoast containing the required period of post-Merger combined operations and that it will notify the undersigned promptly following such publication. 3. Covenants and Warranties of Undersigned. The undersigned represents, warrants and agrees that: (a) The Seacoast Common Stock received by the undersigned as a result of the Merger will be taken for his own account and not for others, directly or indirectly, in whole or in part. (b) Seacoast has informed the undersigned that any distribution by the undersigned of Seacoast Common Stock has not been registered under the 1933 Act and that shares of Seacoast Common Stock received pursuant to the Merger can only be sold by the undersigned (1) following registration under the 1933 Act, or (2) in conformity with the volume and other requirements of Rule 145(d) promulgated by the SEC as the same now exist or may hereafter be amended, or (3) to the extent some other exemption from registration under the 1933 Act might be available. The undersigned understands that Seacoast is under no 58 obligation to file a registration statement with the SEC covering the disposition of the undersigned's shares of Seacoast Common Stock or to take any other action necessary to make compliance with an exemption from such registration available. (c) The undersigned will, and will cause each of the other parties whose shares are deemed to be beneficially owned by the undersigned pursuant to Section 8 hereof to, have all shares of PSHC Common Stock beneficially owned by the undersigned registered in the name of the undersigned or in the name of any bank, broker-dealer, or clearinghouse or nominee of any such bank, broker-dealer or clearinghouse, subject in all cases to the restrictions contained herein and not for the purposes of, or in any manner otherwise, changing the beneficial ownership of such shares, reducing the undersigned's risk of ownership of such shares, or avoiding the purposes of this Agreement. The undersigned shall promptly notify any such bank, broker-dealer, clearinghouse or nominee of the restrictions imposed hereby by providing such persons a copy of this Agreement. (d) During the 30 days immediately preceding the Effective Time of the Merger, the undersigned has not sold, transferred, or otherwise disposed of his interests in, or reduced his risk relative to, any of the shares of PSHC Common Stock beneficially owned by the undersigned as of the record date for determination of shareholders entitled to vote at the Shareholders' Meeting of PSHC held to approve the Merger. (e) The undersigned is aware that Seacoast intends to treat the Merger as a tax-free reorganization under Section 368 of the Internal Revenue Code ("Code") for federal income tax purposes. The undersigned agrees to treat the transaction in the same manner as Seacoast for federal income tax purposes. The undersigned acknowledges that Section 1.368-1(b) of the Income Tax Regulations requires "continuity of interest" in order for the Merger to be treated as tax-free under Section 368 of the Code. This requirement is satisfied if, taking into account those PSHC shareholders who receive cash in exchange for their stock, who receive cash in lieu of fractional shares, or who dissent from the Merger, there is no plan or intention on the part of the PSHC shareholders to sell or otherwise dispose of the Seacoast Common Stock to be received in the Merger that will reduce such shareholders' ownership to a number of shares having, in the aggregate, a value at the time of the merger of less than 50% of the total fair market value of the PSHC Common Stock outstanding immediately prior to the Merger. The undersigned has no prearrangement, plan or intention to sell or otherwise dispose of an amount of his Seacoast Common Stock to be received in the Merger which would cause the foregoing requirement not to be satisfied. 4. Restrictions on Transfer. The undersigned understands and agrees that stop transfer instructions with respect to the shares of Seacoast Common Stock received by the undersigned pursuant to the Merger will be given to Seacoast's Transfer Agent and that there will be placed on the certificates for such shares, or shares issued in substitution thereof, a legend stating in substance: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO A BUSINESS COMBINATION WHICH IS ACCOUNTED FOR AS A "POOLING OF INTERESTS" AND MAY NOT BE SOLD, NOR MAY THE OWNER THEREOF REDUCE HIS RISKS RELATIVE THERETO IN ANY WAY, UNTIL SUCH TIME AS SEACOAST BANKING CORPORATION OF FLORIDA ("SEACOAST") HAS PUBLISHED THE FINANCIAL RESULTS COVERING AT LEAST 30 DAYS OF COMBINED OPERATIONS AFTER THE EFFECTIVE DATE OF THE MERGER THROUGH WHICH THE BUSINESS COMBINATION WAS EFFECTED. IN ADDITION, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT OR UNLESS (1) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (2) IN ACCORDANCE WITH (I) RULE 145(D) (IN THE CASE OF SHARES ISSUED TO AN INDIVIDUAL WHO IS NOT AN AFFILIATE OF SEACOAST) OR (II) RULE 144 (IN THE CASE OF SHARES ISSUED TO AN INDIVIDUAL WHO IS AN AFFILIATE OF SEACOAST) OF THE RULES AND REGULATIONS OF SUCH ACT, OR (3) IN ACCORDANCE WITH A 59 LEGAL OPINION SATISFACTORY TO COUNSEL FOR SEACOAST THAT SUCH SALE OR TRANSFER IS OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT." Such legend will also be placed on any certificate representing Seacoast securities issued subsequent to the original issuance of the Seacoast Common Stock pursuant to the Merger as a result of any transfer of such shares or any stock dividend, stock split, or other recapitalization as long as the Seacoast Common Stock issued to the undersigned pursuant to the Merger has not been transferred in such manner to justify the removal of the legend therefrom. Upon the request of the undersigned, Seacoast shall cause the certificates representing the shares of Seacoast Common Stock issued to the undersigned in connection with the Merger to be reissued free of any legend relating to restrictions on transfer by virtue of ASR 130 and 135 as soon as practicable after the requirements of ASR 130 and 135 have been met. In addition, if the provisions of Rules 144 and 145 are amended to eliminate restrictions applicable to the Seacoast Common Stock received by the undersigned pursuant to the Merger, or at the expiration of the restrictive period set forth in Rule 145(d), Seacoast, upon the request of the undersigned, will cause the certificates representing the shares of Seacoast Common Stock issued to the undersigned in connection with the Merger to be reissued free of any legend relating to the restrictions set forth in Rules 144 and 145(d) upon receipt by Seacoast of an opinion of its counsel to the effect that such legend may be removed. 5. Understanding of Restrictions on Dispositions. The undersigned has carefully read the Agreement and this Affiliate Agreement and discussed their requirements and effects upon his ability to sell, transfer, or otherwise dispose of the shares of Seacoast Common Stock received by the undersigned, to the extent he believes necessary, with his counsel or counsel for PSHC. 6. Filing of Reports by Seacoast. Seacoast agrees, for a period of three years after the effective date of the Merger, to file on a timely basis all reports required to be filed by it pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, so that the public information provisions of Rule 145(d) promulgated by the SEC as the same are presently in effect will be available to the undersigned in the event the undersigned desires to transfer any shares of Seacoast Common Stock issued to the undersigned pursuant to the Merger. 7. Transfer Under Rule 145(d). If the undersigned desires to sell or otherwise transfer the shares of Seacoast Common Stock received by him in connection with the Merger at any time during the restrictive period set forth in Rule 145(d), the undersigned will provide the necessary representation letter to the transfer agent for Seacoast Common Stock together with such additional information as the transfer agent may reasonably request. If Seacoast's counsel concludes that such proposed sale or transfer complies with the requirements of Rule 145(d), Seacoast shall cause such counsel to provide such opinions as may be necessary to Seacoast's Transfer Agent so that the undersigned may complete the proposed sale or transfer. 8. Acknowledgments and Further Agreements. The undersigned recognizes and agrees that the foregoing provisions also apply to all shares of the capital stock of PSHC and Seacoast that are deemed to be beneficially owned by the undersigned pursuant to applicable federal securities laws, which the undersigned agrees may include, without limitation, shares owned or held in the name of (i) the undersigned's spouse, (ii) any relative of the undersigned or of the undersigned's spouse who has the same home as the undersigned, (iii) any trust or estate in which the undersigned, the undersigned's spouse, and any such relative collectively own at least a 10% beneficial interest or of which any of the foregoing serves as trustee, executor, or in any similar capacity, and (iv) any corporation or other organization in which the undersigned, the undersigned's spouse and any such relative collectively own at least 10% of any class of equity securities or of the equity interest. The undersigned further recognizes that, in the event that the undersigned is a director or officer of Seacoast or becomes a director or officer of Seacoast upon consummation of the Merger, among other things, any sale of Seacoast Common Stock by the undersigned within a period of less than six months following the effective time of the Merger may subject the undersigned to liability pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended. 9. Miscellaneous. This Affiliate Agreement is the complete agreement between Seacoast and the undersigned concerning the subject matter hereof. Any notice required to be sent to any party hereunder shall be sent by registered or certified mail, return receipt requested, using the addresses set forth herein or such other 60 address as shall be furnished in writing by the parties. This Affiliate Agreement shall be governed by the laws of the State of Florida. This Affiliate Agreement is executed as of the 19th day of February, 1997. Very truly yours, --------------------------- Signature --------------------------- Print Name --------------------------- --------------------------- --------------------------- Address [add below the signatures of all registered owners of shares deemed beneficially owned by the affiliate] --------------------------- Name: --------------------------- Name: --------------------------- Name: AGREED TO AND ACCEPTED as of February ___, 1997 SEACOAST BANKING CORPORATION OF FLORIDA By: -------------------------------------- 61 EXHIBIT 4 TO AGREEMENT AND PLAN OF MERGER FORM OF DIRECTOR'S AGREEMENT THIS DIRECTOR'S AGREEMENT ("Agreement") is made and entered into as of the 19th day of February, 1997, by and between the undersigned, ______________________, a resident of ______________, Florida, and Seacoast Banking Corporation of Florida, a corporation organized and existing under the laws of the State of Florida ("Seacoast"). On even date herewith, Seacoast and Port St. Lucie National Bank Holding Corp., a corporation organized and existing under the laws of the State of Florida ("PSHC"), have entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement generally provides for the merger of PSHC with and into Seacoast ("Merger"), and the conversion of the issued and outstanding shares of the $0.01 par value common stock of PSHC ("PSHC Common Stock") into shares of the $0.10 par value Class A common stock of Seacoast. The transactions contemplated by the Merger Agreement are subject to the affirmative vote of the shareholders of PSHC, the receipt of certain regulatory approvals and the satisfaction of other conditions. The undersigned is a member of the Board of Directors of PSHC and is the owner of _________ shares of PSHC Common Stock and has rights by option, warrants and otherwise to acquire _________ additional shares of PSHC Common Stock ("Shares"). To induce Seacoast to enter into the Merger Agreement, the undersigned is entering into this Agreement with Seacoast to set forth certain terms and conditions governing the actions to be taken by the undersigned with respect to the Shares until consummation of the Merger. NOW, THEREFORE, in consideration of the transactions contemplated by the Merger Agreement and the mutual promises and covenants contained herein, 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. Without the prior written consent of Seacoast, the undersigned shall not transfer, sell, assign, convey or encumber any of the Shares during the term of this Agreement, except to Seacoast pursuant to the terms of the Merger Agreement. Without limiting the generality of the foregoing, the undersigned shall not grant to any party any option or right to purchase the Shares or any interest therein. Further, except with respect to the Merger, the undersigned shall not approve or ratify any agreement or contract pursuant to which the Shares would be transferred to any other party as a result of a consolidation, merger, reorganization or acquisition. 2. The undersigned intends to, and will, vote all of the Shares beneficially owned by him (and with respect to which he has voting power) in favor of the Merger. The undersigned will also recommend that the shareholders of PSHC approve the Merger when the same is presented to the shareholders for consideration in properly prepared proxy materials, subject only to the undersigned's legal obligations (if any) as a director of PSHC, and will use his or her best efforts to effect consummation of the Merger and the other transactions contemplated by the Merger Agreement. Further, the undersigned intends to, and will, surrender the certificate or certificates representing his or her Shares which are beneficially owned by him (and with respect to which he has sole dispositive power) to Seacoast upon consummation of the Merger as described in the Merger Agreement. 3. The undersigned covenants and agrees with Seacoast that for a period of two years after the effective time of the Merger, the undersigned shall not, without the prior written consent of Seacoast, directly or indirectly serve as a consultant to, serve as a management official of, or be or become a major shareholder of any Depository Institution having an office in Indian River, St. Lucie and/or Martin Counties, Florida. It is expressly understood that the covenants contained in this paragraph 3 do not apply to (i) "management official" positions which the undersigned holds with financial institutions other than PSHC as of the date of this Agreement, (ii) securities holdings which cause the undersigned to be deemed a major shareholder of a Depository Institution other than PSHC as of the date of this Agreement, or (iii) advisory relationships with a Depository Institution which the undersigned has as of the date of this Agreement or may have after the date hereof solely in the capacity 62 as legal counsel. For the purposes of the covenants contained in this paragraph 3, the following terms shall have the following respective meanings: (a) The term "management official" shall refer to service of any type which gives the undersigned the authority to participate, directly or indirectly, in policy-making functions. This includes, but is not limited to, service as an organizer, officer, director, or advisory director of a Depository Institution. It is expressly understood and agreed that the undersigned may be deemed a management official of the Depository Institution whether or not he holds any official, elected, or appointed position with such Depository Institution. (b) The term "Depository Institution" shall refer to any person which engages in the business of making loans and taking deposits or which owns or controls, or is under common control with, a company which engages in such business. (c) The term "major shareholder" shall refer to the beneficial ownership of 2% or more of any class of voting securities of such company or the ownership of 2% of the total equity interest in such company, however denominated. 4. The undersigned waives and releases any claims and/or rights he may have in or under the PSHC directors deferred compensation plan (the "Deferred Plan"), except for the delivery to the undersigned of any cash surrender value of any insurance policies held with respect to the undersigned's accrued benefits under the Deferred Plan, net of any cancellation, liquidation or surrender charges or fees. 5. The undersigned acknowledges and agrees that Seacoast could not be made whole by monetary damages in the event of any default by the undersigned of the terms and conditions set forth in this Agreement. It is accordingly agreed and understood that Seacoast in addition to any other remedy which it may have at law or in equity, shall be entitled to an injunction, injunctions or a restraining order or orders to prevent breaches of this Agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or in any state having appropriate jurisdiction. 6. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 7. Except with respect to the covenants contained in paragraph 3, which shall be governed by the terms set forth therein and shall be effective only upon consummation of the Merger, the covenants and obligations set forth in this Agreement shall expire and be of no further force and effect when the Merger Agreement has been terminated. 63 EXHIBIT 5 TO AGREEMENT AND PLAN OF MERGER FORM OF CLAIMS LETTER February 19, 1997 Seacoast Banking Corporation of Florida P.O. Box 9012 Stuart, Florida 34995-9012 Attention: Dennis S. Hudson, III Executive Vice President Gentlemen: This letter is delivered pursuant to Section 9.2(i) of the Agreement and Plan of Merger ("Merger Agreement") , dated as of February 19,1997 by and Seacoast Banking Corporation of Florida ("Seacoast") and Port St. Lucie National Bank Holding Corp. ("PSHC") Concerning claims which the undersigned may have against PSHC, Seacoast or any of their respective Subsidiaries in my capacity as an officer, director, employee, partner, Controlling Person or Affiliate of PSHC or its Subsidiaries, and in consideration of the premises, and the mutual covenants contained herein and in the Merger Agreement and the mutual benefits to be derived hereunder and thereunder, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned, intending to be legally bound, I hereby affirm and agree to the following in each and every such capacity of the undersigned: 1. CLAIMS. The undersigned does not have, and is not aware of, any claims it might have against Seacoast, PSHC or any of their respective Subsidiaries, except for (i) compensation for services rendered that have accrued but not yet been paid in the ordinary course of business consistent with past practice, (ii) contract rights, under loan commitments and agreements between the undersigned and PSHC or its subsidiaries, specifically limited to possible future advances in accordance with the terms of such commitments or agreements, (iii) certificates of deposits, (iv) payment obligations under the PSHC Directors Deferred Compensation Plan, (if any) consistent with any subject to the terms and conditions of the Merger Agreement and the undersigned's Director's Agreement with Seacoast (if applicable), and (v) obligations of any PSHC Entity under any lease agreement between Harold H. Goldman and PSHC or its subsidiaries consistent with Section 4 of the Director's Agreement entered into by the undersigned. 2. RELEASES. The undersigned hereby releases and forever discharges Seacoast, PSHC, and their respective directors, officers, employees, agents, attorneys, representatives, Subsidiaries, partners, affiliates, controlling persons and insurers, and its successors and assigns, and each of them (hereinafter, individually and collectively, the "Releasees") of and from any and all liabilities, claims, demands, debts, accounts, covenants, agreements, obligations, costs, expenses, actions or causes of action of every nature, character or description, now accrued or which may hereafter accrue, without limitation and whether or not in law, equity or otherwise, based in whole or in part on any facts, conduct, activities, transactions, events or occurrences known or unknown, matured or unmatured, contingent or otherwise, which have or allegedly have existed, occurred, happened, arisen or transpired from the beginning of time to the date of the closing of the transactions contemplated by the Merger Agreement, except for (i) compensation for services rendered that have accrued but not yet been paid in the ordinary course of business consistent with past practice or (ii) contract rights, under loan commitments and agreements between the undersigned and PSHC or its subsidiaries (collectively, the "Claims"). The undersigned 64 represents, warrants and covenants that no Claim released herein has been assigned, expressly, impliedly, by operation of law or otherwise, and that all Claims released hereby are owned solely by the undersigned, which has the sole authority to release them. 3. INDEMNITY. The undersigned shall indemnify and hold harmless, to the fullest extent permitted by law, the Releasees from and against any and all Claims which are released hereby and all claims, damages, losses, liabilities, actions and expenses, including, without limitation, reasonable attorneys' fees and disbursements, arising from, out of, or in connection with the performance or nonperformance of any obligation of the undersigned hereunder, or any action or proceeding in respect thereof. 4. FORBEARANCE. The undersigned shall forever refrain and forebear from commencing, instituting or prosecuting any lawsuit, action, claim or proceeding before or in any court, regulatory, governmental, arbitral or other authority to collect or enforce any Claims which are released and discharged hereby. 5. MISCELLANEOUS. (a) This Release shall be governed and construed in accordance with the laws of the State of Florida (other than the choice of law provisions thereof). (b) This Release contains the entire agreement between the parties with respect to the Claims released hereby, and such Release supersedes all prior agreements, arrangement or understandings (written or otherwise) with respect to such Claims and no representation or warranty, oral or written, express or implied, has been made by or relied upon by any party hereto, except as expressly contained herein, in the Merger Agreement. (c) This Release shall be binding upon and inure to the benefit of the undersigned and the Releasees and their respective successors and assigns. (d) This Release may not be modified, amended or rescinded except by the written agreement of the undersigned and the Releasees, it being the express understanding of the undersigned and the Releasees that no term hereof may be waived by the action, inaction or course of delaying by or between the undersigned or the Releasees, except in strict accordance with this paragraph, and further that the waiver of any breach of this Release shall not constitute or be construed as the waiver of any other breach of the terms hereof. (e) The undersigned represents, warrants and covenants that it is fully aware of its rights to discuss any and all aspects of this matter with any attorney chosen by it, and that it has carefully read and fully understands all the provisions of this Release, and that it is voluntarily entering into this Release. (f) This Release is effective when signed by the undersigned and delivered to Seacoast and acknowledged by Seacoast, and its operation to extinguish all of the Claims released hereby is not dependent on or affected by the performance or non-performance of any future act by the undersigned or the Releasees. Unless otherwise defined herein, all capitalized terms shall have the same meanings as provided in the Merger Agreement. Sincerely, ----------------------------------------------------- Signature of Officer, Director, or Controlling Person 65 On behalf of Seacoast, the undersigned thereunto duly authorized, acknowledges receipt of this letter as of __________________, 1997. Seacoast Banking Corporation of Florida By: -------------------------- Name: Title: EX-23 3 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K of Seacoast Banking Corporation of Florida, into the Company's previously filed registration statements on Form S-8 (File Nos. 33-61925, 33-46504, 33-25267 and 33-22846). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Miami, Florida, March 24, 1997. EX-27 4 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 24,340 0 76,250 0 159,133 49,667 50,555 471,597 4,286 808,408 692,757 45,088 3,794 0 0 0 429 66,340 808,408 37,655 12,875 1,292 51,822 19,976 20,720 31,102 450 72 27,517 11,921 11,921 0 0 7,609 1.77 1.77 4.63 1,535 59 0 0 4,066 582 352 4,286 4,286 0 0
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