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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, 2001 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
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(Exact name of registrant as specified in its charter)
Florida 59-2260678
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart, FL 34994
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(Address of principal executive offices) (Zip code)
(772) 287-4000
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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, Par Value $.10
------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 2002.
Class A Common Stock, $.10 par value - $196,652,456 based upon the closing sale
price on March 1, 2002, 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 executive officers, some of whom may not be held to be
affiliates upon judicial determination.
Class B Common Stock, $.10 par value - $15,915,900 based upon the closing sale
price on March 1, 2002 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 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 March 1, 2002:
Class A Common Stock, $.10 Par Value - 4,322,032 shares
Class B Common Stock, $.10 Par Value - 349,800 shares
Documents Incorporated by Reference:
1. Certain portions of the registrant's 2002 Proxy Statement for the Annual
Meeting of Shareholders to be held April 18, 2002 ("2002 Proxy Statement")
are incorporated by reference into Part III, Items 10 through 13. Other
than those portions of the 2002 Proxy Statement specifically incorporated
by reference herein pursuant to Items 10 through 13, no other portions of
the 2002 Proxy Statement shall be deemed so incorporated.
2. Certain portions of the registrant's 2001 Annual Report to Shareholders
(the "2001 Annual Report") are incorporated by reference in Part II, Items
6 through 8 and Item 14. Other than those portions of the 2001 Annual
Report specifically incorporated by reference herein pursuant to Items 6
through 8 and Item 14, no other portions of the 2001 Annual Report shall be
deemed so incorporated.
FORM 10-K CROSS-REFERENCE INDEX
Page of
Form Annual
10-K Report
Part I
Item 1. Business 1-12 --
Item 2. Properties 13-17 --
Item 3. Legal Proceedings 17 --
Item 4. Submission of Matters to a
Vote of Security-Holders 17 --
Part II
Item 5. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters 18-19 27
Item 6. Selected Financial Data 19 1
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 19-24 12-26
Item 7A. Market Risk 25-26 26
Item 8. Financial Statements and 26 27-29
Supplementary Data & 31-45
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 26 --
Page of
Form
10-K Proxy
Part III
Item 10. Directors and Executive Officers 27 4-9
of the Registrant
Page of
Form
10-K Proxy
Item 11. Executive Compensation 27 9-11&
14-17
Item 12. Security Ownership of Certain 27 4-8&
Beneficial Owners and Management 18-19
Item 13. Certain Relationships and Related 27 17-18
Transactions
Page of
Form Annual
10-K Report
Part IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
(a)(1) List of All Financial Statements 28
Consolidated Balance Sheets as
of December 31, 2001 and 2000 -- 33
Consolidated Statements of Income
for the years ended December 31,
2001, 2000 and 1999 -- 32
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
2001, 2000 and 1999 -- 35
Consolidated Statements of Cash Flows
for the years ended December 31,
2001, 2000, and 1999 -- 34, 44
Notes to Consolidated Financial
Statements -- 36-45
Report of Independent Certified
Public Accountants -- 31
(a)(2) List of Financial Statement Schedules 28 --
(a)(3) List of Exhibits 28-30 --
Page of
Form Annual
10-K Report
(b) Reports on Form 8-K 30 --
(c) Exhibits 30 --
(d) Financial Statement Schedules 30 --
SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made herein under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations", and elsewhere
herein or in any information incorporated herein by reference to other
documents, are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934.
Forward-looking statements include statements with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, estimates and intentions,
and involve known and unknown risks, uncertainties and other factors, which may
be beyond our control, and which may cause the actual results, performance or
achievements of Seacoast Banking Corporation of Florida ("Seacoast" or the
"Company") to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. You should
not expect us to update any forward-looking statements.
You can identify these forward-looking statements through our use of words such
as "may", "will", "anticipate", "assume", "should", "indicate", "would",
"believe", "contemplate", "expect", "estimate", "continue", "point to",
"project", "could", "intend" or other similar words and expressions of the
future. These forward-looking statements may not be realized due to a variety of
factors, including, without limitation: the effects of future economic
conditions; governmental monetary and fiscal policies, as well as legislative
and regulatory changes; the risks of changes in interest rates on the level and
composition of deposits, loan demand, and the values of loan collateral,
securities, and interest sensitive assets and liabilities; interest rate risks
and sensitivities; the effects of competition from other commercial banks,
thrifts, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market and other mutual
funds and other financial institutions operating in the Company's market area
and elsewhere, including institutions operating regionally, nationally and
internationally, together with such competitors offering banking products and
services by mail, telephone, computer and the Internet; the failure of
assumptions underlying the establishment of reserves for possible loan losses,
and the risks of mergers and acquisitions, including, without limitation, the
related costs, including integrating operations as part of these transactions,
and the failure to achieve the expected gains, revenue growth and/or expense
savings from such transactions.
All written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by this Cautionary Notice, and otherwise
in the Company's SEC reports and filings. Such reports are available upon
request from Seacoast, or from the Securities and Exchange Commission, including
the SEC's website at http://www.sec.gov.
Part I
Item 1. Business
General
Seacoast is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("BHC Act"). Seacoast was incorporated
under the laws of the State of Florida on January 24, 1983, by the
management of its principal subsidiary, First National Bank and Trust
Company of the Treasure Coast (the "Bank"), for the purpose of becoming a
holding company for the Bank. On December 30, 1983, Seacoast acquired all
of the outstanding shares of the common stock of the Bank in exchange for
810,000 shares of its $.10 par value Class A common stock ("Class A Common
Stock") and 810,000 shares of its $.10 par value Class B common stock
("Class B Common Stock").
The Bank commenced operations in 1933 under the name "Citizens Bank of
Stuart" pursuant to a charter originally granted by the State of Florida in
1926. The Bank converted to a national bank 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, two in Jensen Beach,
two on Hutchinson Island, one in Hobe Sound, five in Vero Beach, two in
Sebastian, four in Port St. Lucie, and two in Ft. Pierce.
Most of the banking offices have one or more Automated Teller Machines
(ATMs) that provide customers with 24-hour access to their deposit
accounts. Seacoast is a member of the "Star System", the largest electronic
funds transfer organization in the United States, which permits banking
customers access to their accounts at over 180,000 locations throughout the
United States.
Customers can also use the Bank's "MoneyPhone" system to access information
on their loan or deposit account balances, to transfer funds between linked
accounts, to make loan payments, and to verify deposits or checks that may
have cleared. This service is accessible by phone 24 hours a day, seven
days a week.
In addition, customers may access information via the Bank's Customer
Service Center ("CSC"). From 7 A.M. to 7 P.M., Monday through Friday,
servicing personnel in the CSC 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 also offers PC/Internet banking for personal
computers.
In February 2000, the Bank opened a lending office for its newly formed
Seacoast Marine Finance division in Ft. Lauderdale, Florida. Seacoast
Marine Finance is staffed with seasoned, experienced marine lending
professionals with a marketing emphasis on marine loans of $200,000 and
greater. All loans outside of the Bank's primary service area are generally
sold.
Seacoast has four indirect subsidiaries. FNB Brokerage Services, Inc. ("FNB
Brokerage") provides brokerage and annuity services. FNB Insurance
Services, Inc. ("FNB Insurance") provides insurance services. South Branch
Building, Inc. is a general partner in a partnership that constructed a
branch facility of the Bank. Big O RV Resort, Inc. was formed to own and
operate certain properties acquired through foreclosure, but is currently
inactive. The operations of these subsidiaries contribute less than 10% of
the consolidated assets and revenues of Seacoast.
As a bank holding company, Seacoast is a legal entity separate and distinct
from its subsidiaries. Seacoast coordinates the financial resources of the
consolidated enterprise and maintains financial, operational and
administrative systems that allow centralized evaluation of subsidiary
operations and coordination of selected policies and activities. Seacoast's
operating revenues and net income are derived primarily from its subsidiary
through dividends, fees for services performed and interest on advances and
loans. See "Supervision and Regulation".
As of December 31, 2001, Seacoast and its subsidiaries employed 358
full-time equivalent employees.
Seacoast's and the Bank's principal offices are located at 815 Colorado
Avenue, Stuart, Florida 34994, and the telephone number at that address is
(772) 287-4000. Seacoast and the Bank maintain an Internet website at
www.fnbtc.com. Seacoast is not incorporating the information on that
website into this report, and the website and the information appearing on
the website are not included in, and are not part of, this report.
Expansion of Business
Seacoast has expanded its products and services to meet the changing needs
of the various segments of its market and it expects to continue this
strategy. Prior to 1991, Seacoast had expanded geographically primarily
through the addition of branches, including the acquisition of a thrift
branch in St. Lucie County.
Seacoast has from time to time acquired banks, bank branches and deposits,
and has opened new branches and facilities.
Florida law permits state-wide branching, and Seacoast has expanded, and
anticipates future expansion in its markets, by opening additional offices
and facilities. New banking facilities were opened in November 1994 in St.
Lucie West, a new community west of Port St. Lucie, and in May 1996 in a
WalMart superstore in Sebastian, which is located in northern Indian River
County. In January 1997, Seacoast opened a branch in Nettles Island, a
predominately modular home community on Hutchinson Island in southern St.
Lucie County. In May, June and July 1997, and in March 1998, four
additional branch offices were opened in Indian River County. In July 2000,
a new branch on US 1 in northern Martin County near the St. Lucie County
line was opened; at the same time a branch in St. Lucie County
approximately one-half mile from the new branch was closed. In June 2001, a
branch in a conveniently located WalMart Superstore was acquired in Ft.
Pierce. See "Item 2. Properties".
Seacoast regularly evaluates possible acquisitions and other expansion
opportunities.
Competition
Seacoast and its subsidiaries operate in the highly competitive markets of
Martin, St. Lucie and Indian River Counties in southeastern Florida. The
Bank not only competes with other banks in its markets, but it also
competes with various other types of financial institutions for deposits,
certain commercial, fiduciary and investment services and various types of
loans and certain other financial services. The Bank also competes for
interest-bearing funds with a number of other financial intermediaries and
investment alternatives, including mutual funds, brokerage and insurance
firms, governmental and corporate bonds, and other securities.
Seacoast and its subsidiaries compete not only with financial institutions
based in the State of Florida, but also with a number of large out-of-state
and foreign banks, bank holding companies and other financial institutions
which have an established market presence in the State of Florida, or which
offer products by mail, telephone or over the Internet. Many of Seacoast's
competitors are engaged in local, regional, national and international
operations and have greater assets, personnel and other resources than
Seacoast. Some of these competitors are subject to less regulation and/or
more favorable tax treatment than Seacoast.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under federal
and state law. This discussion is qualified in its entirety by reference to
the particular statutory and regulatory provisions referred to below and is
not intended to be an exhaustive description of the status or regulations
applicable to the Company's and the Bank's business. Supervision,
regulation, and examination of the Company and the Bank and their
respective subsidiaries by the bank regulatory agencies are intended
primarily for the protection of depositors rather than holders of Company
capital stock. Any change in applicable law or regulation may have a
material effect on the Company's business.
Bank Holding Company Regulation
The Company, as a bank holding company, is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve") under the BHC Act. Bank holding companies are generally
limited to the business of banking, managing or controlling banks, and
other activities that the Federal Reserve determines to be so closely
related to banking, or managing or controlling banks, as to be a proper
incident thereto. 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 non-bank Subsidiaries.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially
all the assets of any bank, or for a merger or consolidation of a bank
holding company with another bank holding company. With certain exceptions,
the BHC Act prohibits a bank holding company from acquiring direct or
indirect ownership or control of voting shares of any company which is not
a bank or bank holding company, and from engaging directly or indirectly in
any activity other than banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding
company, may, however, engage in or acquire an interest in a company that
engages in activities which the Federal Reserve has determined by
regulation or order to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
In November 1999, Congress enacted the Gramm-Leach-Bliley Act ("GLB") which
made substantial revisions to the statutory restrictions separating banking
activities from certain other financial activities. Under GLB, bank holding
companies that are "well-capitalized" and "well-managed", as defined in
Federal Reserve Regulation Y, which have and maintain "satisfactory"
Community Reinvestment Act ("CRA") ratings, and meet certain other
conditions, can elect to become "financial holding companies". Financial
holding companies and their subsidiaries are permitted to acquire or engage
in previously impermissible activities such as insurance underwriting,
securities underwriting, travel agency activities, broad insurance agency
activities, merchant bank, and other activities that the Federal Reserve
determines to be financial in nature or complementary thereto. In addition,
under the merchant banking authority added by the GLB and Federal Reserve
regulation, financial holding companies are authorized to invest in
companies that engage in activities that are not financial in nature, as
long as the financial holding company makes its investment with the
intention of limiting the term of its investment, does not manage the
company on a day-to-day basis, and the invested company does not
cross-market with any of the financial holding company's controlled
depository institutions. Financial holding companies continue to be subject
to the overall oversight and supervision of the Federal Reserve, but GLB
applies the concept of functional regulation to the activities conducted by
subsidiaries. For example, insurance activities would be subject to
supervision and regulation by state insurance authorities. While the
Company has not become a financial holding company, it may elect to do so
in the future in order to exercise the broader activity powers provided by
GLB.
The Company is a legal entity separate and distinct from the Bank and its
other subsidiaries. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company or its non-bank
subsidiaries. The Company and the Bank are subject to Section 23A of the
Federal Reserve Act. Section 23A defines "covered transactions", which
include extensions of credit, and limits a bank's covered transactions with
any affiliate to 10% of such bank's capital and surplus. All covered and
exempt transactions between a bank and its affiliates must be on terms and
conditions consistent with safe and sound banking practices, and banks and
their subsidiaries are prohibited from purchasing low-quality assets from
the bank's affiliates. Finally, Section 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 permits 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, subject to certain deposit-percentage, age of bank charter
requirements, and other restrictions. Federal law also permits national and
state-chartered banks to branch interstate through acquisitions of banks in
other states. Florida has an Interstate Branching Act (the "Florida
Branching Act"), which permits interstate branching. 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 that qualify
as capital under regulatory rules. However, any loans from the holding
company to such subsidiary banks likely will be unsecured and subordinated
to such bank's depositors and perhaps to other creditors of the bank.
Bank and Bank Subsidiary Regulation
The Bank is subject to supervision, regulation, and examination by the
Office of the Comptroller of the Currency (the "OCC") which monitors all
areas of the operations of the Bank, including reserves, loans, mortgages,
issuances of securities, payment of dividends, establishment of branches,
capital adequacy, and compliance with laws. The Bank is a member of the
FDIC and, as such, its deposits are insured by the FDIC to the maximum
extent provided by law. See "FDIC Insurance Assessments".
Under Florida law, the Bank may establish and operate branches throughout
the State of Florida, subject to the maintenance of adequate capital and
the receipt of OCC approval.
The OCC has adopted a series of revisions to its regulations, including
expanding the powers exercisable by operations subsidiaries. These changes
also modernize and streamline corporate governance, investment and
fiduciary powers.
The OCC has adopted the Federal Financial Institutions Examination
Council's ("FFIEC") rating system and assigns each financial institution a
confidential composite rating based on an evaluation and rating of six
essential components of an institution's financial condition and operations
including Capital adequacy, Asset quality, Management, Earnings, Liquidity
and Sensitivity to market risk, as well as the quality of risk management
practices. For most institutions, the FFIEC has indicated that market risk
primarily reflects exposures to changes in interest rates. When regulators
evaluate this component, consideration is expected to be given to:
management's ability to identify, measure, monitor, and control market
risk; the institution's size; the nature and complexity of its activities
and its risk profile, and the adequacy of its capital and earnings in
relation to its level of market risk exposure. Market risk is rated based
upon, but not limited to, an assessment of the sensitivity of the financial
institution's earnings or the economic value of its capital to adverse
changes in interest rates, foreign exchange rates, commodity prices, or
equity prices; management's ability to identify, measure, monitor and
control exposure to market risk; and the nature and complexity of interest
rate risk exposure arising from non-trading positions.
GLB requires banks and their affiliated companies to adopt and disclose
privacy policies regarding the sharing of personal information they obtain
from their customers with third parties. GLB also permits bank subsidiaries
to engage in "financial activities" through subsidiaries similar to those
permitted to financial holding companies. See the discussion regarding GLB
in "Bank Holding Company Regulation" above.
FNB Brokerage, a Bank subsidiary, is registered as a securities
broker-dealer under the Exchange Act and is regulated by the Securities and
Exchange Commission ("SEC"). As a member of the National Association of
Securities Dealers, Inc., it also is subject to examination and supervision
of its operations, personnel and accounts by NASD Regulation, Inc. FNB
Brokerage is a separate and distinct entity from the Bank, and must
maintain adequate capital under the SEC's net capital rule. The net capital
rule limits FNB Brokerage's ability to reduce capital by payment of
dividends or other distributions to the Bank. FNB Brokerage is also
authorized by the State of Florida to act as a securities dealer and
investment advisor.
FNB Insurance, a Bank insurance agency subsidiary, is authorized by the
State of Florida to market insurance products as agent. FNB Insurance is a
separate and distinct entity from the Bank and is subject to supervision
and regulation by state insurance authorities.
Community Reinvestment Act
The Company and the Bank are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA") and the federal banking
agencies' regulations thereunder. Under the CRA, all banks and thrifts have
a continuing and affirmative obligation, consistent with their safe and
sound operation to help meet the credit needs for their entire communities,
including low and moderate income neighborhoods. The CRA 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; (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution, or (vi) expand
other activities, including engaging in financial services activities
authorized by GLB. A less than satisfactory CRA rating will slow, if not
preclude, expansion of banking activities and prevent a company from
becoming a financial holding company.
GLB and federal bank regulations have made various changes to the CRA.
Among other changes, CRA agreements with private parties must be disclosed
and annual CRA reports must be made to a bank's primary federal regulator.
A bank holding company will not be permitted to become or remain a
financial holding company and no new activities authorized under GLB may be
commenced by a holding company or by a bank financial subsidiary if any of
its bank subsidiaries received less than a "satisfactory" CRA rating in its
latest CRA examination.
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. In
1994, the Department of Housing and Urban Development, the Department of
Justice (the "DJ"), and the federal banking agencies issued an Interagency
Policy Statement on Discrimination in Lending in order to provide guidance
to financial institutions in determining whether discrimination exists, how
the agencies will respond to lending discrimination, and what steps lenders
might take to prevent discriminatory lending practices. The DJ has also
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 debts in excess of such bank's
allowance for possible 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 depository institutions
and their holding companies should generally pay dividends only out of
current operating earnings.
Capital
The Federal Reserve and the OCC have risk-based capital guidelines for bank
holding companies and national banks, respectively. These guidelines
require a minimum ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) of
8%. At least half of the total capital must consist of common equity,
retained earnings and a limited amount of qualifying preferred stock, less
goodwill and certain core deposit intangibles ("Tier 1 capital"). The
remainder may consist of non-qualifying preferred stock, qualifying
subordinated, perpetual, and/or mandatory convertible debt, term
subordinated debt and intermediate term preferred stock and up to 45% of
pretax unrealized holding gains on available for sale equity securities
with readily determinable market values that are prudently valued, and a
limited amount of any loan loss allowance ("Tier 2 capital" and, together
with Tier 1 capital, "Total Capital").
In addition, the Federal Reserve and the OCC have established minimum
leverage ratio guidelines for bank holding companies and national banks,
which provide for a minimum leverage ratio of Tier 1 capital to adjusted
average quarterly assets ("leverage ratio") equal to 3%, plus an additional
cushion of 1.0% to 2.0%, if the institution has less than the highest
regulatory rating. The guidelines also provide that institutions
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Higher capital may be required in individual cases depending upon a bank
holding company's risk profile. All bank holding companies and banks are
expected to hold capital commensurate with the level and nature of their
risks, including the volume and severity of their problem loans. Lastly,
the Federal Reserve's guidelines indicate that the Federal Reserve will
continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The
Federal Reserve and OCC have not advised the Company or the Bank of any
specific minimum leverage ratio or tangible Tier 1 leverage ratio
applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to
take "prompt corrective action" regarding depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital
tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", and "critically undercapitalized". A
depository institution's capital tier will depend upon how its capital
levels compare to various relevant capital measures and certain other
factors, as established by regulation.
All of the federal banking agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the Total Capital ratio, Tier 1 capital ratio, and the
leverage ratio. Under the regulations, a national bank will be (i) well
capitalized if it has a Total Capital ratio of 10% or greater, a Tier 1
capital ratio of 6% or greater, and a leverage ratio of at least 5%, and is
not subject to any written agreement, order, capital directive, or prompt
corrective action directive by a federal bank regulatory agency to meet and
maintain a specific capital level for any capital measure, (ii) adequately
capitalized if it has a Total Capital ratio of 8% or greater, a Tier 1
capital ratio of 4% or greater, and a leverage ratio of 4% or greater (3%
in certain circumstances), (iii) undercapitalized if it has a Total Capital
ratio of less than 8%, a Tier 1 capital ratio of less than 4% (3% in
certain circumstances), (iv) significantly undercapitalized if it has a
total capital ratio of less than 6% or a Tier I capital ratio of less than
3%, or a leverage ratio of less than 3%, or (v) critically undercapitalized
if its tangible equity is equal to or less than 2% of average quarterly
tangible assets.
As of December 31, 2001, the consolidated capital ratios of the Company and
the Bank were as follows:
Regulatory
Minimum Company Bank
Tier 1 capital ratio 4.0% 11.7% 11.6%
Total capital ratio 8.0% 12.6% 12.5%
Leverage ratio 3.0-5.0% 7.5% 7.4%
FDICIA
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth compensation, a maximum ratio of classified assets
to capital, minimum earnings sufficient to absorb losses, a minimum ratio
of market value to book value for publicly traded shares, and such other
standards as the federal regulatory agencies deem appropriate.
FDICIA 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 complies with such capital restoration plan. The aggregate
liability of the parent holding company is limited to the lesser of 5% of
the depository institution's total assets at the time it became
undercapitalized and the amount necessary to bring the institution into
compliance with applicable capital standards. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized. If the controlling holding company fails to fulfill its
obligations under FDICIA and files (or has filed against it) a petition
under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the
bank holding company. Significantly undercapitalized depository
institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets, and cessation of receipt
of deposits from correspondent banks. Critically undercapitalized
institutions are subject to the appointment of a receiver or conservator.
Because the Company and the Bank exceed applicable capital requirements,
the respective managements of the Company and the Bank do not believe that
the provisions of FDICIA have had any material impact on the Company and
the Bank or their respective operations.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Bank, including reporting requirements,
regulatory standards for real estate lending, "truth in savings"
provisions, the requirement that a depository institution give 90 days'
prior notice to customers and regulatory authorities before closing any
branch, and a prohibition on the acceptance or renewal of brokered deposits
by depository institutions that are not well capitalized or are adequately
capitalized and have not received a waiver from the FDIC. The Bank is well
capitalized, and brokered deposits are not restricted.
Enforcement Policies and Actions
The Federal Reserve and the OCC monitor compliance with laws and
regulations. Violations of laws and regulations, or other unsafe and
unsound practices, may result in these agencies imposing fines or
penalties, cease and desist orders, or taking other enforcement actions.
Under certain circumstances, these agencies may enforce these remedies
directly against officers, directors, employees and others participating in
the affairs of a bank or bank holding company.
Fiscal and Monetary Policy
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits
and its other borrowings, and the interest received by a bank on its loans
and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of Seacoast and the Bank are
subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve. The Federal
Reserve regulates the supply of money through various means, including open
market dealings in United States government securities, the discount rate
at which banks may borrow from the Federal Reserve, and the reserve
requirements on deposits. The nature and timing of any changes in such
policies and their effect on Seacoast and its subsidiaries cannot be
predicted.
FDIC Insurance Assessments
The Bank is subject to FDIC deposit insurance assessments. The Bank's
deposits are primarily insured by the FDIC's Bank Insurance Fund ("BIF").
The Bank is also a member of the Savings Association Insurance Fund
("SAIF") to the extent that the Bank holds deposits acquired in 1991 from
the RTC. The FDIC assesses deposits under a risk-based premium schedule.
Each financial institution is assigned to one of three capital groups,
"well capitalized," "adequately capitalized" or "undercapitalized," and
further assigned to one of three subgroups within a capital group, on the
basis of supervisory evaluations by the institution's primary federal and,
if applicable, state regulators and other information relevant to the
institution's financial condition and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution, therefore, depends in part upon the risk assessment
classification so assigned to the institution by the FDIC. During the years
ended December 31, 2001, and 2000, the Bank paid no deposit premiums,
except for the Financing Corporation ("FICO") assessments of $177,000 and
$184,000, respectively. The FDIC has indicated that, based on its current
level of reserves, deposit insurance premiums may increase.
The FDIC's Board of Directors has continued the 2001 BIF and SAIF
assessment schedule of zero to 27 basis points per annum for the first
semiannual period of 2002. The Deposit Insurance Funds Act of 1996 (the
"Funds Act") authorized FICO to levy assessments through the earlier of
December 31, 1999 or the merger of BIF and SAIF, on BIF-assessable deposits
at a rate equal to one-fifth of the FICO assessment rate applied to SAIF
deposits. As of January 1, 2002, the FICO assessment rate was equivalent
for BIF and SAIF-assessable deposits. The FICO assessments are set
quarterly and ranged from 1.96 basis points for BIF and SAIF in the first
quarter of 2001 to 1.84 basis points in the last quarter of 2001. The
assessment rates for BIF and SAIF assessable deposits in the first and
second quarters of 2002 are 1.82 and 1.76 basis points, respectively.
Legislative and Regulatory Changes
On October 26, 2001, a new anti-terrorism bill, The International Money
Laundering Abatement and Anti-Terrorism Funding Act of 2001, was signed
into law. Among the provisions applicable to financial institutions, this
act imposes new "know your customer" requirements that obligate financial
institutions to take actions to verify the identity of the account holders
in connection with the opening an account at any U.S. financial
institution. Banking regulators are required to consider a financial
institution's compliance with the act's money laundering provisions in
making decisions regarding approval of acquisitions and mergers, and the
regulatory authorities may impose sanctions for violations of this act.
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 is the possible combination
of the BIF and SAIF, and reforming the deposit insurance system. The FDIC
has proposed a restructuring of the federal deposit insurance system. Other
proposals pending in Congress would, among other things, allow banks to pay
interest on checking accounts and to establish interstate branches "de
novo." 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.
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 occupies 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 third parties.
Adjacent to the main office, the Bank leases approximately 21,400 square
feet of office space to house operational departments, consisting primarily
of information systems and retail support. The Bank owns its equipment,
which is used for servicing bank deposits and loan accounts as well as
on-line banking services, providing tellers and other customer service
personnel with access to customers' records.
In February 2000, the Bank leased storefront space in Ft. Lauderdale,
Florida for a lending office for its newly formed Seacoast Marine Finance
division. The office occupies 1,913 square feet of space, with furniture
and equipment all owned by the Bank.
As of December 31, 2001, the net carrying value of branch offices
(excluding the main office) was approximately $8.4 million. Seacoast's
branch offices are described as follows:
Jensen Beach, opened in 1977, is a free-standing facility located in the
commercial district of a residential community contiguous to Stuart. The
1,920 square foot bank building and land are owned by the Bank.
Improvements include three drive-in teller lanes and one drive-up ATM as
well as a parking lot and landscaping.
East Ocean Boulevard, opened at its original location in 1978, was a 2,400
square foot building leased by the Bank. The acquisition of American Bank
provided an opportunity for the Bank to move to a new location in April
1995. It is still located on the main thoroughfare between downtown Stuart
and Hutchinson Island's beachfront residential developments. The first
three floors of a four-story office condominium were acquired in the
acquisition. The 2,300 square foot branch area on the first floor has been
remodeled and operates as a full service branch including five drive-in
lanes and a drive-up ATM. The remaining 2,300 square feet on the ground
floor was sold in June 1996, the third floor was sold in December 1995, and
the second floor in December 1998.
Cove Road, opened in late 1983, is conveniently located close to housing
developments in the residential areas south of Stuart known as Port Salerno
and Hobe Sound. South Branch Building, Inc., a subsidiary of the Bank, is a
general partner in a partnership that 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. Remaining space is sublet by the Bank
to other business tenants. The Bank has improved its premises with three
drive-in lanes, bank equipment, and furniture and fixtures, all of which
are owned by the Bank. A drive-up ATM was added in early 1997.
Hutchinson Island, opened on December 31, 1984, is in a shopping center
located on a coastal barrier island, close to numerous oceanfront
condominium developments. In 1993, the branch was expanded from 2,800
square feet to 4,000 square feet and is under a long-term lease to the
Bank. The Bank has improved the premises with bank equipment, a walk-up ATM
and three drive-in lanes, all owned by the Bank.
Rivergate originally opened October 28, 1985 and occupied 1,700 square feet
of leased space in the Rivergate Shopping Center, Port St. Lucie, Florida.
The Bank moved to larger facilities in the shopping center in April of 1999
under a long-term lease agreement. Furniture and bank equipment located in
the prior facilities were moved to the new facility, which occupies
approximately 3,400 square feet, with three drive-in lanes and a drive-up
ATM.
Northport was acquired on June 28, 1986 from Citizens Federal Savings &
Loan Association of Miami. This property consists of a storefront under
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,
until December 2001, was utilized by local community groups for meetings.
The property is currently vacant and the lease expires in August 2002.
Wedgewood Commons, opened in April 1988, is located on an out-parcel under
long term lease in the Wedgewood Commons Shopping Center, south of Stuart
on U.S. Highway 1. The property consists of a 2,800 square foot building
which houses four drive-in lanes, a walk-up ATM and various bank equipment,
all of which are owned by the Bank and are located on the leased property.
Bayshore, opened on September 27, 1990, occupies 3,520 square feet of a
50,000 square foot shopping center located in Port St. Lucie. The Bank has
leased the premises under a long-term lease agreement and has made
improvements to the premises, including the addition of three drive-in
lanes and a walk-up ATM, all of which are owned by the Bank. A second
location, acquired in the merger with Port St. Lucie National Holding
Company ("PSHC"), and in close proximity to this location, was closed on
June 1, 1997 and subsequently sold in September 1997.
Hobe Sound, acquired from the Resolution Trust Company ("RTC") on December
23, 1991, is a two-story facility containing 8,000 square feet and is
centrally located in Hobe Sound. Of 2,800 square feet on the second floor,
1,225 square feet is utilized by local community organizations.
Improvements include two drive-in teller lanes, a drive-up ATM, and
equipment and furniture, all of which are owned by the Bank.
Fort Pierce, acquired from the RTC on December 23, 1991, is a 2,895 square
foot facility in the heart of Fort Pierce that has three drive-in lanes and
a drive-up ATM. Equipment and furniture are all owned by the Bank.
Martin Downs, purchased from the RTC in February 1992, is a 3,960 square
foot bank building located at a high traffic intersection in Palm City, an
emerging commercial and residential community west of Stuart. Improvements
include three drive-in teller lanes, a drive-up ATM, equipment and
furniture.
Tiffany, purchased from the RTC in May 1992, is a two-story facility
containing 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 contains 4,250 square
feet and was leased to tenants until December 2001. In 2002, the Bank plans
to utilize the second story space to house brokerage and mortgage
solicitation personnel, a training facility and conference area. Three
drive-in teller lanes, a walk-up ATM, equipment and furniture are utilized
and owned by the Bank.
Vero Beach, purchased from the RTC in February 1993, is a 3,300 square foot
bank building located in Vero Beach on U.S. Highway One and represents the
Bank's initial presence in the Indian River County market. A leasehold
interest in a long-term land lease was acquired. Improvements include three
drive-in teller lanes, a walk-up ATM, equipment and furniture, all of which
are owned by the Bank.
Beachland, opened in February 1993, consists of 4,150 square feet of leased
space located in a three-story commercial building on Beachland Boulevard,
the main beachfront thoroughfare in Vero Beach, Florida. The lease on an
additional 1,050 square feet leased during 1996 expires in March 2002. This
facility has 2 drive-in teller lanes, a drive-up ATM, and furniture and
equipment, all owned by the Bank.
Sandhill Cove, opened in September 1993, is in an upscale life-care
retirement community. The 135 square foot office is located within the
community facilities on a 36-acre development in Palm City, Florida. This
community contains approximately 168 private residences.
St. Lucie West, opened in November 1994, was in a 3,600 square foot
building located at 1320 S.W. St. Lucie Blvd, Port St. Lucie. As a result
of the PSHC merger, this facility was closed in June 1997 and the property
was sold in September 1997. On June 1, 1997, the Bank moved its St. Lucie
West operations to the Renar Centre (previously occupied by PSHC). The Bank
leases 4,320 square feet on the first floor of this facility and 1,200
square feet on the second floor. The facility includes three drive-in
teller lanes, a drive-up ATM, and furniture and equipment.
Mariner Square, acquired from American Bank in April 1995, is a 3,600
square foot leased space located on the ground floor of a three-story
office building located on U.S. Highway 1 between Hobe Sound and Port
Salerno. Approximately 700 square feet of the space is sublet to a tenant.
The space occupied by the Bank has been improved to be a full service
branch with two drive-in lanes, one serving as a drive-up ATM lane as well
as a drive-in teller lane, all owned by the Bank.
Sebastian, opened in May 1996, is located within a 174,000 square foot
WalMart Superstore on U.S. 1 in northern Indian River County. The leased
space occupied by the Bank totals 865 square feet. The facility has a
walk-up ATM, owned by the Bank.
Nettles Island was opened in January 1997 in southern St. Lucie County on
Hutchinson Island. It occupies 350 square feet of leased space in a
predominantly modular home community. Furniture and equipment are owned. No
ATM or drive-in lanes are offered.
U.S. 1 and Port St. Lucie Boulevard office opened as a Bank location on
June 1, 1997, upon the merger with PSHC. At the date of the merger, the
leased space consisted of 5,188 square feet on the first floor and 1,200
square feet on the second floor. In October 1997, 1,800 square feet of the
leased space on the first floor and 1,200 square feet of leased space on
the second floor were assigned to another tenant, with the remaining space
occupied by the Bank totaling 3,388 square feet. The facility has two
drive-in lanes, a walk-up ATM, and furniture and equipment, all owned by
the Bank. This facility was closed in July 2000, coinciding with the
opening of a new, more visible office on a leased out-parcel in a new
shopping center approximately one-half mile south of the closed location on
U.S. 1. The lease expires in April 2002.
South Vero Square opened in May 1997 in a 3,150 square foot building owned
by the Bank on South U.S. 1 in Vero Beach. The facility includes three
drive-in teller lanes, a drive-up ATM, and furniture and equipment, all
owned by the Bank.
Oak Point opened in June 1997. It occupies 12,000 square feet of leased
space on the first and second floor of a 19,700 square foot 3-story
building in Indian River County. The office is in close proximity to Indian
River Memorial Hospital and the peripheral medical community adjacent to
the hospital. The facility includes three drive-in teller lanes, a walk-up
ATM, and furniture and equipment, all owned by the Bank. On the second
floor, 2,270 square feet is presently sublet to tenants.
Route 60 Vero opened in July 1997. Similar to the Sebastian office, this
facility is housed in a WalMart Superstore in western Vero Beach in Indian
River County. The branch occupies 750 square feet of leased space and
includes a walk-up ATM.
Sebastian West opened in March 1998 in a 3,150 square foot building owned
by the Bank. It is located at the intersection of Fellsmere Road and
Roseland Road in Sebastian. The facility includes three drive-in teller
lanes, a drive-up ATM, and furniture and equipment, all owned by the Bank.
Jensen West, opened in July 2000, is located on an out parcel under
long-term lease on U.S. Highway 1 in northern Martin County. The facility
consists of a 3,930 square foot building, with four drive-up lanes, a
drive-up ATM and furniture and equipment, all of which are owned by the
Bank and are located on the leased property. The opening of this office
coincided with the closing of the Bank's U.S. 1 and Port St. Lucie
Boulevard office, one-half mile north of this location.
Ft. Pierce, the Bank's newest branch office in June 2001 is another WalMart
Superstore location. The branch occupies 540 square feet of leased space
and includes a walk-up ATM, a night depository, and furniture and
equipment, all owned by the Bank.
For additional information, refer to Notes F and I of the Notes to
Consolidated Financial Statements in the 2001 Annual Report of Seacoast,
certain portions of which are incorporated herein by reference pursuant to
Item 8 of this document.
In the fourth quarter of 2002, an additional WalMart Superstore branch
consisting of 695 square feet of leased space in a highly visible location
on U.S. Highway One in Port. St. Lucie is expected to open.
Item 3. Legal Proceedings
The Company and its subsidiaries, because of the nature of their business,
are at times subject to numerous legal actions, threatened or filed, in the
normal course of their business. Although the amount of any ultimate
liability with respect to such matters cannot be determined, in the opinion
of management, after consultation with legal counsel, those claims and
lawsuits, when resolved, should not have a material adverse effect on the
consolidated results of operation or financial condition of Seacoast and
its subsidiaries.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Part II
Item 5. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The Class A Common Stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market ("Nasdaq Stock Market"). There is no
established public trading market for the Class B Common Stock of Seacoast.
As of March 1, 2002, there were approximately 4,322,032 shares of Class A
Common Stock outstanding, held by approximately 858 record holders and
approximately 349,800 shares of Class B Common Stock outstanding, held by
60 record holders.
Seacoast Class A Stock is traded in the over-the-counter market and is
quoted on the Nasdaq Stock Market under the symbol "SBCFA". The following
table sets forth the high, low and last sale prices per share of Seacoast
Class A Stock on the Nasdaq Stock Market and the dividends paid per share
of Seacoast Class A Stock for the indicated periods.
Sale Price Per Share of
Seacoast Class A Stock Annual Dividends
----------------------- Declared Per Share of
High Low Seacoast Class A Stock
----------------------- ----------------------
2001
First Quarter......... $30.563 $26.938 $0.28
Second Quarter........ 35.15 27.25 0.28
Third Quarter......... 43.39 34.85 0.28
Fourth Quarter........ 47.00 37.60 0.30
2000
First Quarter......... $28.75 $24.75 $0.26
Second Quarter........ 27.25 25.00 0.26
Third Quarter......... 27.125 25.50 0.26
Fourth Quarter........ 26.625 24.25 0.28
During 2001, the Company did not sell any securities not registered under
the Securities Act of 1933, as amended.
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 1999, cash dividends of $.98 per share of Class A Common Stock and $.89
of Class B Common Stock were paid. In 2000, cash dividends of $1.06 per
share of Class A Common Stock and $0.962 of Class B Common Stock were paid.
In 2001, cash dividends of $1.14 per share of Class A Common Stock and
$1.032 per share of Class B Common Stock were paid.
Dividends from the Bank are Seacoast's primary source of funds to pay
dividends on Seacoast capital stock. Under the National Bank Act, the Bank
may in any calendar year, without the approval of the OCC, pay dividends to
the extent of net profits for that year, plus retained net profits for the
preceding two years (less any required transfers to surplus). The need to
maintain adequate capital in the Bank also limits dividends that may be
paid to Seacoast. Information regarding a restriction on the ability of the
Bank to pay dividends to Seacoast is contained in Note B of the "Notes to
Consolidated Financial Statements" contained in Item 8 hereof. See
"Supervision and Regulation" contained in Item 1 of this document.
The OCC and Federal Reserve have the general authority to limit the
dividends paid by insured banks and bank holding companies, respectively,
if such payment may be deemed to constitute an unsafe or unsound practice.
If, in the particular circumstances, the OCC determines that the payment of
dividends would constitute an unsafe or unsound banking practice, the OCC
may, among other things, issue a cease and desist order prohibiting the
payment of dividends. This rule is not expected to adversely affect the
Bank's ability to pay dividends to Seacoast. See "Supervision and
Regulation" contained in Item 1 of this document.
Each share of Class B Common Stock is convertible by its holder into one
share of Class A Common Stock at any time prior to a vote of shareholders
authorizing a liquidation of Seacoast.
Item 6. Selected Financial Data
Selected financial data is incorporated herein by reference under the
caption "Financial Highlights" on page 1 of the 2001 Annual Report. See
Exhibit 13.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption "Financial Review - 2001 Management's
Discussion and Analysis", on pages 12 through 26 of the 2001 Annual Report
is incorporated herein by reference. See Exhibit 13.
Critical Accounting Policies
Management believes that the most critical accounting policies which may
affect the Company's financial status and involve the most complex,
subjective and ambiguous assessments are as follows:
The allowance and provision for loan losses, securities available for
sale valuation and accounting, the value of goodwill, and the fair
market value of mortgage servicing rights at acquisition and any
impairment of that value.
Disclosures intended to facilitate a reader's understanding of the possible
and likely events or uncertainties known to management which could have a
material impact on the reported financial information of the Company
related to the most critical accounting policies are as follows:
Allowance and Provision for Loan Losses
The information contained in the Company's Annual Report on pages 15 and
18-22 related to the "Provision for Loan Losses", "Loan Portfolio",
"Allowance for Loan Losses" and "Nonperforming Assets" is intended to
describe the known trends, events and uncertainties which could materially
impact the reported financial information.
Securities Available for Sale
On pages 24-25 and 36-37 of the Annual Report, information is provided
related to the Company's securities portfolio.
The market value of the Available for Sale portfolio at December 31, 2001
exceeded historical amortized cost, producing unrealized gains of
$2,341,000. The market value of each security was obtained from independent
pricing sources utilized by many financial institutions. However, actual
values can only be determined in an arms-length transaction between a
willing buyer and seller which can, and often do, vary from these reported
values. Furthermore, significant changes in recorded values due to changes
in actual and perceived economic conditions can occur rapidly, eliminating
reported gains and producing unrealized losses.
The credit quality of the Company's security holdings is such that negative
changes in the market values, as a result of unforeseen deteriorating
economic conditions, should only be temporary. Further, management believes
that the Company's other sources of liquidity, as well as the cash flow
from principal and interest payments from the securities portfolio, reduces
the risk that losses would be realized as a result of needed liquidity from
the securities portfolio.
Value of Goodwill
Beginning January 1, 2002, the Company's goodwill will no longer be
amortized, but tested for impairment. The amount of goodwill at December
31, 2001 totaled approximately $2.5 million and was acquired in 1995 as a
result of the purchase of a community bank within the Company's dominant
market. The Company has a commercial bank deposit market share of
approximately 35 percent in this market, which had a population increase of
over 25 percent during the past ten years.
The assessment as to the continued value for goodwill involves judgments,
assumptions and estimates regarding the future.
The population is forecast by the Bureau of Economic and Business Research
at the University of Florida to continue to grow at a 20 percent plus rate
over the next ten years. Our highly visible local market orientation,
combined with a wide range of products and services and favorable
demographics, has resulted in increasing profitability in all of the
Company's markets. There is data available indicating that both the
products and customers serviced have grown since the acquisition, which is
attributable to the increased profitability and supports the goodwill value
at December 31, 2001.
Mortgage Servicing Rights
A large portion of the Company's loan production involves loans for 1-4
family residential properties. As part of its efforts to manage interest
rate risk, the Company securitizes pools of loans and creates U.S.
Agency-guaranteed mortgage-backed securities. As part of the agreement with
the agency, the Company is paid a servicing fee to manage the loan and
collect the monthly loan payments. In accordance with FAS No. 140, the
Company records an asset (mortgage servicing rights) at the fair value of
those rights. At December 31, 2001, the total fair value of those rights
was $1.05 million. The fair value of the mortgage servicing rights is based
on judgments, assumptions and estimates as to the period the fee will be
collected, current and future interest rates, and loan foreclosures. These
judgments, assumptions and estimates are initially made at the time of
securitization and reviewed at least quarterly. Impairment, if any, is
recognized through a valuation allowance and charged against current
earnings.
Liquidity and Capital Resources
The Company is a financial entity and as such its assets and liabilities
are financial in nature. The Company derives funding for its activities
from a number of sources. At present, these sources include deposits and
repurchase agreements with its customers, federal funds lines with
correspondent banks, advances from the Federal Home Loan Bank (FHLB) and
capital investment by shareholders. The following table highlights funding
amounts at December 31, 2001:
Contractual Maturities
----------------------
(Dollars in millions) Total 0-3 Months 4-12 Months 1-5 Years >5 Years
- --------------------------------------------------------------------------------
Demand deposits $172.1
Savings deposits 444.2
Certificates of Deposit 398.8 $117.1 $203.8 $77.9
Repurchase Agreements 71.7 71.7
FHLB Advances 40.0 25.0 $15.0
Shareholders' Equity 93.5
Demand and Savings Deposits - These deposits have no contractual maturity and
include checking (both noninterest bearing and interest bearing), savings and
money market accounts. Together with certificates of deposit less than $100,000,
these deposits are generally referred to as "core deposits." These deposits are
derived from individuals, businesses and public entities (comprised mostly of
municipal, tax collection, and other governmental bodies), generally all from
within the Company's defined market area (the "Treasure Coast"). Over time,
customer needs change and the Company has responded with innovative "core
deposit" products that meet these needs. As a result, the Company has been able
to rely upon and grow demand and savings deposits as a consistent and reliable
funding source.
Over the past ten years, demand and savings deposits have experienced a weighted
average annual growth of 9.7 percent. During 2001, the Company's growth in
demand and savings deposits surpassed the ten-year average, increasing $75.8
million or 14.0 percent. In part, the growth this year reflects the success of
new products, such as Money Manager, an interest bearing NOW account with a
desirable linkage to customer brokerage accounts, and Investor NOW, an interest
bearing NOW account indexed to third party mutual funds for balances in excess
of $100,000. These products have increased substantively during the past year,
by $32.6 million on an aggregate basis. Also impacting the growth in "core
deposits" but not as measurable is the recent economic environment. In
particular, recent turmoil in financial markets, a less robust economy, and a
lower interest rate environment have resulted in customers focusing on
safeguarding assets, resulting in increases in funds maintained with financial
institutions, including the Company. If economic improvements occur in 2002,
some shifting of customer funds into investment vehicles other than deposits
will likely occur.
Certificates of Deposit - These deposits have proven to be a fairly reliable
source of funding as well, increasing a weighted average of 6.1 percent annually
over the past ten years. During 2001, lower loan growth and increases in demand
and savings deposits diminished funding requirements from certificates of
deposit. As a result, the Company de-emphasized advertising for certificates
deposit in 2001, and certificates of deposit declined $17.7 million or 4.3
percent. In 2002, with the probability that interest rates are more likely to
increase, the Company will likely begin to promote longer-term certificates of
deposits. The Company does not accept brokered deposits which have a higher
retention risk.
Repurchase Agreements - Repurchase agreements are offered by the Company's
subsidiary bank to select customers who wish to sweep excess balances on a daily
basis for investment purposes. At December 31, 2001, the Company had 133
customers in its market providing $71.7 million in funding via these
arrangements. Repurchase agreement balances vary during the year, generally
peaking at year-end. During 2001, the lowest balance for repurchase agreements
at any month-end was $40.5 million and the highest balance at any month-end was
$71.7 million at year-end. The Company generally maintains a higher balance in
federal funds sold or other short-term investments when repurchase agreement
balances peak to offset their potential withdrawal.
The Company also has access to additional short-term funding of its activities
by selling, under agreement to repurchase, United States Treasury securities and
securities of United States Government agencies and corporations and mortgage
backed securities that are not pledged. At December 31, 2001, the Company had
$185.7 million in securities available and not pledged.
Federal Funds and FHLB Lines of Credit - The Company has access to liquidity via
funding from its federal funds and FHLB lines of credit.
At December 31, 2001, the Company had available federal funds lines of credit of
$55.5 million (comprised of lines of credit with a number of correspondent
banks). Federal funds lines are unsecured and short-term in nature, maturing
primarily from overnight to seven days. The Company has periodically borrowed on
its federal funds lines of credit, generally on an overnight basis and at market
rates.
The Company also has a $125.0 million line of credit with the FHLB with $85.0
million available at December 31, 2001. All funding from the FHLB is secured by
residential mortgage loans contained in the Company's subsidiary bank's loan
portfolio. While the line may be utilized like a federal funds line, the FHLB
provides numerous offerings, with rates fixed or adjustable and for various
maturity terms. At December 31, 2001, the Company had advances on its FHLB line
of credit totaling $40.0 million. Also see Note G, "Borrowings", on page 38 of
the 2001 Annual Report.
Shareholders' Equity - The Company's earnings, generated principally by its
subsidiary bank, have consistently funded growth in total capital for the
Company and funded payments of dividends to shareholders. The Company manages
the size of equity through a program of share repurchases of its outstanding
Class A Common Stock. At December 31, 2001, there were 529,519 shares totaling
$17.2 million in treasury stock. The Company is subject to rules and regulations
pertaining to its capital levels, on a consolidated basis and at a subsidiary
level. Based upon required capital ratio calculations, the Company and its
subsidiaries meet and exceed all measures of capital adequacy, as defined by
regulation.
Parent Company Revolving Line of Credit - On September 6, 2001, the parent,
Seacoast Banking Corporation of Florida, established a revolving line of credit
totaling $5.0 million which, if drawn upon, may be used for general corporate
purposes, including but not limited to the capital needs of the Company and its
subsidiaries and the repurchase of Class A Common Stock (See "Shareholders'
Equity" above). Covenants pertaining to the line require an interest coverage
ratio not greater than 3.0x, a non-performing asset ratio less than or equal to
1.00 percent, and capital ratios defined as "well-capitalized" by regulatory
standards. No amounts have been drawn on this line.
Significant Future Financial Commitments - The Company is obligated under
various non-cancelable, operating leases for equipment, buildings and land. At
December 31, 2001, future minimum lease payments under leases with initial or
remaining terms in excess of one year are as follows:
Committed Amount
----------------
(Dollars in millions) Total 1 Year 2-3 Years 4-5 Years >5 Years
- -------------------------------------------------------------------------------
Operating Leases $14.5 $1.6 $3.1 $2.4 $7.4
Rent expense charged to operations was $1.6 million in 2001, $1.7 million in
2000 and $1.5 million in 1999.
Transactions with Related Parties
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 $4.6 million and $5.0 million at
December 31, 2001 and 2000, respectively. During 2001, $0.9 million of new loans
were made and repayments totaled $1.3 million.
Certain property is leased from related parties of the Company at prevailing
rental rates. Lease payments to these individuals were $260,000 in 2001,
$255,000 in 2000 and $229,000 in 1999.
Commitments with Off Balance Sheet Risk
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. 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. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. 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 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 holds collateral supporting standby lines of credit for
which collateral is deemed necessary. At December 31, 2001, commitments to
extend credit totaled $114.9 million and standby letters of credit totaled $1.4
million.
Trading Activities
The Company does not engage in any activities that it believes would be defined
as trading.
Item 7A. Market Risk
Market risk is inherent to all industries and all financial institutions'
assets and liabilities are affected by market risks. The Company considers
credit risk to be the most significant of these risks; however, interest
rate risk is also significant. There are eight risks that must be
considered in managing the Company. These risks are listed below in order
of management's perceived level of risk imposed upon the Company. The
Company does not conduct foreign exchange transactions that would expose
the Company to foreign exchange risk or trading activities that would
produce price risk. Therefore, these risks are not addressed in this
assessment. The Company has identified certain critical risks to the Bank.
Credit Risks
Credit risk is the risk to the Company's earnings or capital from the
potential of an obligator or related group of obligators failing to fulfill
its or their contractual commitments to the Bank. Credit risk is most
closely associated with a bank's lending. It encompasses the potential of
loss on a particular loan as well as the potential for loss from a group of
related loans, i.e., a credit concentration. Credit risk extends also to
less traditional bank activities. It includes the credit behind the Bank's
investment portfolio, the credit of counterparties to interest rate
contracts, and the credit of securities brokers holding the Bank's
investment portfolio in street name.
Interest Rate Risk
Interest rate risk is the risk to earnings or market value of portfolio
equity (capital) from the potential movement in interest rates. The Company
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 6 percent, given a change in interest rates (up or down) of 200 basis
points. Based on the Company's most recent ALCO model simulations, the
Company believes that net interest income would decline approximately 1.5
percent if interest rates would immediately rise 200 basis points. The
Company is willing to accept a change in the estimated market value of
portfolio equity of 5%, given a 200 basis point increase in interest rates.
At December 31, 2001, the Company's most recent estimates indicate
compliance with this objective. However, these calculations incorporate the
use of many assumptions (which the Company believe to be reasonable) to
estimate the fair values of its assets and liabilities. In addition,
seasonal increases and decreases in the volume of the various financial
instruments can and do effect these calculations. Therefore, the Company
monitors these calculations on a quarterly basis and more frequently during
periods of interest rate volatility.
Please also refer to the Section entitled "Interest Rate Sensitivity" on
page 26 of Seacoast's 2001 Annual Report, which is incorporated by
reference into this report, for additional information regarding the
Company's sensitivity to interest rates.
Liquidity Risk
Liquidity risk is the risk to earnings or capital from the Company's
inability to meet its obligations when they come due without incurring
unacceptable losses or costs such as when depositors withdraw their
deposits and the Bank does not have the liquid assets to fund the
withdrawals and to meet its loan funding obligations. The risk is
particularly great with brokered deposits, of which the Company currently
has none.
Transaction Risk
Transaction risk is the risk to earnings or capital arising from problems
with service or product delivery or from failure in the Bank's operating
processes. It is a risk of failure in a bank's automation, its employee
integrity, or its internal controls.
Compliance Risk
Compliance risk is the risk to earnings or capital from noncompliance with
laws, rules and regulations.
Strategic Risk
Strategic risk is the risk to earnings or capital arising from adverse
business decisions or improper implementation of those decisions.
Reputation Risk
Reputation risk is the risk to earnings or capital from negative or other
unfavorable public opinion, including with respect to competitors.
Most of these risks are interrelated, and thus must be considered by
management regardless of the implied risk. Management reviews performance
against these ranges on a quarterly basis.
Item 8. Financial Statements and Supplementary Data
The report of Arthur Andersen LLP, independent certified public
accountants, and the consolidated financial statements are included on
pages 31 through 45 of the 2001 Annual Report and are incorporated herein
by reference. "Selected Quarterly Information - Consolidated Quarterly
Average Balances, Yields & Rates" and "Quarterly Consolidated Income
Statements" included on pages 27 through 29 of the 2001 Annual Report are
incorporated herein by reference. See Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors and executive officers of Seacoast is
set forth under the headings "Proposal One - Election of Directors",
"Information About the Board of Directors and its Committees" and
"Executive Officers" on pages 4 through 9, as well as under the heading
"Section 16(a) Reporting" on page 36, in the 2002 Proxy Statement and is
incorporated herein by reference.
Item 11. Executive Compensation
Information set forth under the headings "Proposal One - Election of
Directors - Compensation of Executive Officers", "Salary and Benefits
Committee Report", "Summary Compensation Table", "Grants of Options/SARs in
2001", "Aggregated Options/SAR Exercises in 2001 and 2001 Year-End
Option/SAR Values", "Profit Sharing Plan", "Executive Deferred Compensation
Plan", "Performance Graph", and "Employment and Severance Agreements" on
pages 9 through 11 and pages 14 through 17 of the 2002 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information set forth under the headings, "Proposal One - Election of
Directors - General" on pages 4 through 8, "Proposal One - Election of
Directors - Management Stock Ownership" on page 9, and "Principal
Shareholders" on pages 18 and 19 in the 2002 Proxy Statement, relating to
the number of shares of Class A Common Stock and Class B Common Stock
beneficially owned by the directors of Seacoast, all such directors and
officers as a group and certain beneficial owners is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information set forth under the heading "Proposal One - Election of
Directors - Salary and Benefits Committee Interlocks and Insider
Participation" and "Certain Transactions and Business Relationships" on
pages 17 and 18 of the 2002 Proxy Statement is incorporated herein by
reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a)(1) List of all financial statements
The following consolidated financial statements and report of independent
certified public accountants of Seacoast, included in the 2001 Annual
Report are incorporated by reference into Item 8 of this Annual Report on
Form 10-K.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
a)(2) List of Financial Statement Schedules
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
a)(3) Listing of Exhibits
The following Exhibits are filed as part of this report in Item 14 (c):
Exhibit 3.1 Amended and Restated Articles of Incorporation Incorporated
herein by reference from registrant's Current Report on Form 8-K, File No.
0-13660, dated June 6, 1997.
Exhibit 3.2 Amended and Restated By-laws of the Corporation Incorporated
herein by reference from Exhibit 3.2 of Registrant's Current Report on Form
8-K, File No. 0-13660, dated June 6, 1997.
Exhibit 4.1 Specimen Class A Common Stock Certificate Incorporated herein
by reference from Exhibit 4.1 of the Registrant's Registration Statement on
Form S-1, File No. 2-88829.
Exhibit 4.2 Specimen Class B Common Stock Certificate Incorporated herein
by reference from Exhibit 4.2 of registrant's Registration Statement on
Form S-1, File No. 2-88829.
Exhibit 10.1 Profit Sharing Plan, as amended Incorporated herein by
reference from registrant's Registration Statement on Form S-8, File No.
33-22846, dated July 18, 1988, and as amended, from Exhibit 10.1 of
registrant's Annual Reports on Form 10-K, dated March 27, 1998.
Exhibit 10.2 Employee Stock Purchase Plan Incorporated herein by reference
from registrant's Registration Statement on Form S-8 File No. 33-25627,
dated November 18, 1988.
Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan Incorporated
herein by reference from registrant's Annual Reports on Form 10-K, dated
March 29, 1991.
Exhibit 10.4 Executive Employment Agreement Dated March 22, 1991 between A.
Douglas Gilbert and the Bank, incorporated herein by reference from
registrant's Annual Reports on Form 10-K, dated March 29, 1991.
Exhibit 10.5 Executive Employment Agreement Dated January 18, 1994 between
Dennis S. Hudson, III and the Bank, incorporated herein by reference from
registrant's Annual Reports on Form 10-K, dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement Dated July 31, 1995 between C.
William Curtis, Jr. and the Bank, incorporated herein by reference from
registrant's Annual Reports on Form 10-K, dated March 28, 1996.
Exhibit 10.8 1991 Stock Option & Stock Appreciation Rights Plan
Incorporated herein by reference from registrant's Registration Statement
on Form S-8 File No. 33-61925, dated August 18, 1995.
Exhibit 10.9 1996 Long Term Incentive Plan Incorporated herein by reference
from registrant's Registration Statement on Form S-8 File No. 333-91859,
dated December 1, 1999.
Exhibit 10.10 Non-Employee Director Stock Compensation Plan Incorporated
herein by reference from registrant's Registration Statement on Form S-8
File No. 333-70399 dated January 11, 1999.
Exhibit 10.11 2000 Long Term Incentive Plan Incorporated herein by
reference from registrant's Registration Statement on Form S-8 File No.
333-49972, dated November 15, 2000.
Exhibit 10.12 Executive Deferred Compensation Plan Dated October 17, 2000,
but effective November 1, 2000.
Exhibit 13 2001 Annual Report The following portions of the 2001 Annual
Report are incorporated herein by reference:
Financial Highlights
Financial Review - Management's Discussion and Analysis
Selected Quarterly Information - Quarterly Consolidated
Income Statements
Selected Quarterly Information - Consolidated Quarterly
Average Balances, Yields & Rates
Financial Statements
Notes to Consolidated Financial Statements
Financial Statements - Report of Independent Certified
Public Accountants
Exhibit 21 Subsidiaries of Registrant Incorporated herein by reference from
Exhibit 22 of Registrant's Annual Report on Form 10-K, File No. 0-13660,
dated March 17, 1992.
Exhibit 23 Consent of Independent Certified Public Accountants
b) Reports on Form 8-K No reports on Form 8-K were filed during the last
quarter of 2001.
c) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report.
d) Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stuart,
State of Florida, on the 28th day of March 2002.
SEACOAST BANKING CORPORATION OF FLORIDA
(Registrant)
By: /s/ Dennis S. Hudson, III
-------------------------
Dennis S. Hudson, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated. Date
Date
/s/ Dale M. Hudson March 28, 2002
- ---------------------------------------------
Dale M. Hudson, Chairman of the Board
and Director
/s/ Dennis S. Hudson, III March 28, 2002
- ---------------------------------------------
Dennis S. Hudson, III, President,
Chief Executive Officer and Director
/s/ William R. Hahl March 28, 2002
- ---------------------------------------------
William R. Hahl, Executive Vice President and
Chief Financial Officer
/s/ Jeffrey C. Bruner March 28, 2002
- ---------------------------------------------
Jeffrey C. Bruner, Director
/s/ John H. Crane March 28, 2002
- ---------------------------------------------
John H. Crane, Director
/s/ Evans Crary, Jr. March 28, 2002
- ---------------------------------------------
Evans Crary, Jr., Director
/s/ Christopher E. Fogal March 28, 2002
- ---------------------------------------------
Christopher E. Fogal, Director
/s/ Jeffrey S. Furst March 28, 2002
- ---------------------------------------------
Jeffrey S. Furst, Director
March 28, 2002
- ---------------------------------------------
Dennis S. Hudson, Jr., Director
/s/ John R. Santarsiero, Jr. March 28, 2002
- ---------------------------------------------
John R. Santarsiero, Jr., Director
/s/ Thomas H. Thurlow, Jr. March 28, 2002
- ---------------------------------------------
Thomas H. Thurlow, Jr., Director
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, 33-25627,
33-22846, 333-91859, 333-70399 and 333-49972).
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
March 28, 2002.
SEACOAST BANKING CORPORATION OF FLORIDA
March 28, 2002
United States Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
RE: Annual Report on Form 10-K for the Year Ended December 31, 2001
Confirmation of Receipt of Assurances from Arthur Andersen LLP
Ladies and Gentlemen:
Seacoast Banking Corporation of Florida engages Arthur Andersen LLP ("Andersen")
as our independent public accountants. Andersen completed its audit work on our
financial statements for the year ended December 31, 2001 on January 14, 2002,
and Andersen's opinion with respect to our financial statements bear that date.
However, we did not file our Annual Report on Form 10-K for the year ended
December 31, 2001 until after March 14, 2002.
We are aware of the contents of Release No. 34-45590 and the addition of
Temporary Note 3T to Article 3 of Regulation S-X (the "Temporary Note"). As the
audit of our financial statements was completed prior to March 14, 2002, we
believe that the requirements set forth in the Temporary Note are not applicable
to our situation. However, in an abundance of caution, we have requested and
received from Andersen a letter representing to us that its audit was subject to
Andersen's quality control system for U.S. accounting and auditing practice to
provide reasonable assurance that the engagement was conducted in compliance
with professional standards, that there was appropriate continuity of Andersen
personnel working on the audit, availability of national office consultation and
availability of personnel at foreign affiliates of Arthur Andersen to conduct
the relevant portions of the audit.
Respectfully submitted.
SEACOAST BANKING CORPORATION OF FLORIDA
/s/ William H. Hahl
- -------------------
William H. Hahl
Executive Vice President
Chief Financial Officer
EX-13
2001 ANNUAL REPORT
Financial Highlights
(Dollars in thousands except
per share data)
FOR THE YEAR 2001 2000 1999 1998 1997
- ------------ ---- ---- ---- ---- ----
Net interest income $45,493 $42,095 $43,089 $40,213 $38,077
Provision for loan losses 0 600 660 1,710 913
Noninterest income:
Securities gains (losses) 915 (12) 309 612 48
Other 15,108 13,150 12,148 11,775 10,896
Noninterest expenses 38,060 34,877 35,983 35,721 36,425
Income before income taxes 23,456 19,756 18,903 15,169 11,683
Provision for income taxes 9,326 7,668 7,119 5,606 4,251
Net income 14,130 12,088 11,784 9,563 7,432
Core earnings (1) 22,624 20,459 19,439 16,565 12,755
Per share data Net income:
Diluted 2.96 2.51 2.40 1.84 1.42
Basic 3.00 2.53 2.43 1.88 1.45
Cash dividends paid:
Class A common 1.14 1.06 0.98 0.90 0.82
Book value 20.10 17.87 15.96 15.87 15.75
Dividends to net income 37.60% 41.60% 39.80% 47.40% 53.80%
AT YEAR END
Assets $1,225,964 $1,151,373 $1,081,032 $1,092,230 $943,037
Securities 306,352 204,664 213,654 261,183 220,150
Net loans 777,993 837,328 771,294 695,207 608,567
Deposits 1,015,154 957,089 905,960 905,202 806,098
Shareholders' equity 93,519 84,263 77,111 78,442 81,064
Performance ratios:
Return on average assets 1.22% 1.09% 1.11% 0.98% 0.83%
Return on average equity 15.62 14.09 14.64 11.64 9.17
Net interest margin (2) 4.12 4.03 4.34 4.40 4.60
Average equity to average
assets 7.78 7.76 7.57 8.39 9.09
- --------------------------------------------------------------------------------
(1) Income before taxes excluding the provision for loan losses, securities
gains (losses) and expenses associated with foreclosed and repossessed
asset management and dispositions.
(2) On a fully taxable equivalent basis.
================================================================================
FINANCIAL REVIEW
================================================================================
2001 Management's Discussion and Analysis
Net income for 2001 totaled $14,130,000 or $2.96 per share diluted, compared
with $12,088,000 or $2.51 per share diluted in 2000 and $11,784,000 or $2.40 per
share diluted in 1999. Return on average assets was 1.22 percent and return on
average shareholders' equity was 15.62 percent for 2001, compared to the prior
year's results of 1.09 percent and 14.09 percent, respectively, and 1999's
results of 1.11 percent and 14.64 percent, respectively.
Earnings in 2001 were impacted favorably by securities gains of $915,000
($562,000 after tax) or $0.12 per share diluted.
- --------------------------------------------------------------------------------
Results of Operations
---------------------
Net Interest Income
- --------------------
Net interest income (on a fully tax equivalent basis) increased $3,340,000 or
7.9 percent to $45,713,000 for 2001. For 2001, net interest margin increased to
4.12 percent from 4.03 percent for 2000.
Since December 2000, the Federal Reserve was aggressive in reducing short-term
rates. A 50 basis point reduction in December 2000, and the additional
reductions totaling 400 basis points by the Fed, contributed to the improvement
in the Company's margin. On a tax equivalent basis, the net interest margin
improved from 4.10 percent in the first quarter, to 4.12 percent in the second
quarter, to 4.13 percent in the third quarter, to 4.14 percent in the fourth
quarter.
In 2001 the cost of interest bearing liabilities declined 45 basis points to
3.88 percent from a year ago. The rates for NOW, savings, money market accounts,
certificates of deposit, and short-term borrowings declined 13, 104, 17, 16, and
243 basis points, respectively. The rate for NOW accounts decreased less than
what might be expected as a result of the growth in balances in a product called
Investor NOW. The rate paid on this product is indexed to third party mutual
funds for balances in excess of $100,000. Average outstanding balances for this
account during 2001 increased to $28.9 million from $5.1 million a year earlier.
Another NOW account, Money Manager, also pays a premium rate and the average
balance for this account increased $8.8 million during 2001, versus 2000.
Lower interest rates significantly impacted the prepayment of loans and
investments. These funds and the funds from deposit increases had to be invested
in earning assets at lower rates. The yield on earning assets for 2001 decreased
30 basis points to 7.32 percent, compared to one year earlier. The yield on
loans declined 7 basis points to 7.93 percent, the yield on securities decreased
62 basis points to 5.65 percent, and the yield on federal funds sold declined
186 basis points to 4.21 percent. Average earning assets increased $58.2 million
or 5.5 percent during 2001, with increases of $24.5 million to $246.2 million in
securities, $10.7 million to $831.1 million in loans, and $23.0 million to $31.2
million in federal funds sold. In comparison, average loan balances grew $77.4
million in 2000 and securities balances declined.
The mix of earning assets, deposits and other interest bearing liabilities had a
positive impact on the margin during 2001. Average loans (the highest yielding
component of earning assets) as a percentage of earning assets decreased from
78.1 percent to 75.0 percent from a year ago, while securities increased from
21.1 percent to 22.2 percent and federal funds sold increased from 0.8 percent
to 2.8 percent. While total loans did not increase as a percentage of earning
assets versus prior year, the Company successfully changed the mix of loans,
with commercial and consumer volumes increasing as a percentage of total loans
and residential loan balances declining (see Loan Portfolio). Average
certificates of deposit (a higher cost component of interest bearing
liabilities) as a percentage of interest bearing liabilities decreased to 46.0
percent from 47.3 percent a year ago. Lower loan growth in 2001 diminished
funding requirements, thereby allowing for lower rates to be paid for
certificates of deposit. Early in 2001 management concluded that interest rates
would continue to decrease. Therefore, short 3- to 5-month certificates of
deposit were marketed so that they could be repriced at lower rates. The Company
has approximately $117 million in CDs maturing in the first quarter of 2002.
Lower cost core interest bearing deposits (average NOW, savings and money market
deposits) grew $22.9 million or 6.1 percent to $400.3 million and average
noninterest bearing demand deposits grew $10.6 million or 7.4 percent to $155.0
million, favorably affecting the Company's deposit mix. Short-term borrowings
(including federal funds purchased, but principally sweep repurchase agreements
with customers) increased to 5.7 percent of interest bearing liabilities from
4.5 percent a year ago, reflecting an increase in the balances maintained by
customers utilizing sweep arrangements.
Proceeds from securities sales totaled $154.0 million during 2001 and purchases
totaled $350.4 million. This compares to $10.2 million in sales and $20.9
million in purchases during 2000. Activity in the first quarter of 2001 ($65.9
million in sales and $106.1 million in purchases) reflected a restructuring
effort to maximize earnings in the declining rate environment. In the second
quarter $69.1 million in sales and $65.9 million in purchases were transacted,
with $58.8 million in sales transacted in late June, in part to meet seasonal
liquidity, but also to position the Company to benefit from possible future
interest rate increases. No sales occurred in the third quarter of 2001, but of
the $70.8 million in purchases transacted, $30.2 million was invested in
floating rate securities based on the expectation (prior to the terrorist event
on September 11, 2001) that further interest rate reductions by the Fed would be
on hold. Sales in the fourth quarter totaling $19.0 million were transacted to
realize appreciation on securities that management believed had reached their
maximum potential total return, and securities of $107.6 million were acquired
with durations ranging from 0.4 years to 3.3 years.
Net interest income (on a fully tax equivalent basis) decreased $1,078,000 or
2.5 percent to $42,373,000 for 2000, compared to a year earlier. For 2000, the
net interest margin decreased to 4.03 percent from 4.34 percent for 1999.
In 2000, the Federal Reserve increased short term rates 100 basis points, with
increases of 25 basis points in both February and March 2000 and another 50
basis points in May 2000. The Company, along with most other banks, had its net
interest margin decline over 2000 as a result of the Federal Reserve's actions.
In the fourth quarter of 2000, the net interest margin (on a fully tax
equivalent basis) of 3.93 percent was three basis points higher than in the
third quarter of 2000, but was 15 basis points lower when compared to the second
quarter of 2000 and 31 basis points lower when compared to first quarter 2000's
margin performance.
TABLE 1:
Condensed Income Statement as a Percent of Average Assets
(Tax equivalent basis)
2001 2000 1999
----- ----- -----
Net interest income 3.93% 3.83% 4.09%
Provision for loan losses 0.00 0.05 0.06
Noninterest income
Securities gains 0.08 0.00 0.03
Other 1.30 1.19 1.14
Noninterest expenses 3.27 3.16 3.39
---- ---- ----
Income before income taxes 2.04 1.81 1.81
Provision for income taxes
including tax equivalent
adjustment 0.82 0.72 0.70
----- ----- -----
Net Income 1.22% 1.09% 1.11%
===== ===== =====
For the twelve months ended December 31, 2000 (compared to 1999), the cost of
interest bearing liabilities increased 70 basis points to 4.33 percent, with
rates for NOW, savings, money market, time deposits, short term borrowings, and
other borrowings increasing 26, 96, 14, 74, 107, and 72 basis points,
respectively. In part, the rate for NOW accounts increased as a result of the
success of the new Investor NOW product, offered at a competitive market rate
tied to an index. Rates for savings accounts increased as a result of the
success of two savings products called Grand Savings and Grand Savings Plus
which were offered at higher rates than the Company's regular savings account.
The products increased $6.2 million and $33.7 million, respectively, during
2000. Certificates of deposit grew $13.2 million during 2000, reflecting higher
interest rates paid and customer desire to shift deposit balances from lower
interest bearing core deposits into higher yielding time deposits. The increase
in rate for short term borrowings (all maturing overnight) reflects the impact
of the Federal Reserve's actions during 2000. The termination (call) of a $10
million borrowing with a rate of 5.40 percent with Donaldson, Lufkin & Jenrette
(DLJ) at the end of August 2000 and the addition of $25 million of two-year
fixed rate borrowings from the Federal Home Loan Bank (FHLB) in March 2000 at
6.99 percent (subsequently renewed for a three-year term at 6.55 percent in
December 2000) effected the increase in the cost of other borrowings.
TABLE 2:
Changes in Average Earning Assets
(Dollars in thousands)
Increase/(Decrease) Increase/(Decrease)
2001 vs 2000 2000 vs 1999
------------ ------------
Securities:
Taxable $26,818 12.5% ($26,734) (11.1)%
Nontaxable (2,234) (29.7) (3,030) (28.7)
Federal funds sold
and other short
term investments 22,950 278.1 506 6.5
Loans, net 10,664 1.3 77,419 10.4
------- -------
Total $58,198 5.5% $48,161 4.8%
======= =======
With regards to interest earned, the yield on earning assets for 2000 increased
24 basis points to 7.62 percent, compared to 7.38 percent for 1999. Increases in
the yield on loans of 15 basis points to 8.00 percent, the yield on securities
of 22 basis points to 6.27 percent, and the yield on federal funds sold of 125
basis points to 6.07 percent was enhanced by a changing earning assets mix (with
a $77.4 million growth in average loans during 2000). The growth in loans,
larger as an amount in 2000 than for 1999, was slightly slower as a percentage
year-over-year, 10.4 percent versus 11.0 percent, respectively.
TABLE 3:
Rate/Volume Analysis (On a Tax Equivalent Basis)
Amount of Increase/(Decrease)
(Dollars in thousands)
2001 vs 2000
Due to Change In:
-----------------
Volume Rate Mix Total
---------------------------------
Earning Assets
Securities:
Taxable $1,666 $(1,314) $(165) $ 187
Nontaxable (177) 0 0 (177)
---------------------------------
1,489 (1,314) (165) 10
Federal funds sold and
other short term
investments 1,394 (154) (428) 812
Loans 853 (561) (7) 285
---------------------------------
Total Earning Assets 3,736 (2,029) (600) 1,107
Interest Bearing Liabilities
NOW 47 (72) (3) (28)
Savings deposits 258 (1,429) (84) (1,255)
Money market accounts 267 (322) (22) (77)
Time deposits 517 (660) (15) (158)
---------------------------------
1,089 (2,483) (124) (1,518)
Federal funds purchased
and other short term
borrowings 680 (939) (312) (571)
Long term borrowings (128) (17) 1 (144)
---------------------------------
Total Interest Bearing
Liabilities 1,641 (3,439) (435) (2,233)
---------------------------------
Net Interest Income $2,095 $1,410 $(165) $3,340
=================================
- ---------------
Rate/Volume Analysis (On a Tax Equivalent Basis)(con't)
Amount of Increase (Decrease)
(Dollars in thousands)
2000 vs 1999
Due to Change In:
-----------------
Volume Rate Mix Total
-----------------------------------
Earning Assets
Securities:
Taxable ($1,591) $625 $(69) ($1,035)
Nontaxable (253) (46) 13 (286)
-----------------------------------
(1,844) 579 (56) (1,321)
Federal funds sold and
other short term
investments 24 98 6 128
Loans 6,078 1,095 114 7,287
----------------------------------
Total Earning Assets 4,258 1,772 64 6,094
Interest Bearing Liabilities
NOW (105) 162 (15) 42
Savings deposits 600 1,058 257 1,915
Money market accounts (438) 300 (32) (170)
Time deposits 657 2,928 97 3,682
---------------------------------
714 4,448 307 5,469
Federal funds purchased
and other short term
borrowings 13 411 3 427
Long term borrowings 976 179 122 1,277
---------------------------------
Total Interest Bearing
Liabilities 1,703 5,038 432 7,173
---------------------------------
Net Interest Income $2,555 ($3,266) ($368) ($1,079)
=================================
Average earning assets in 2000 were $48.2 million or 4.8 percent higher when
compared to prior year. Average interest bearing liabilities were $29.5 million
or 3.5 percent higher year over year. Loans (the highest yielding component of
earning assets) as a percentage of average earning assets increased to 78.1
percent compared to 74.1 percent in 1999, while average securities (a lower
yielding component) declined to 21.1 percent from 25.1 percent. Average other
borrowings (the highest cost component of interest bearing liabilities) as a
percentage of average interest bearing liabilities increased to 4.8 percent in
2000 compared to 3.0 percent in 1999. Lower cost core interest bearing deposits
(NOW, savings and money market deposits) decreased $1.0 million or 0.3 percent
to $377.4 million during 2000 and declined from 45.1 percent to 43.4 percent as
a component of average interest bearing liabilities. Favorably affecting the
Company's deposit mix, average noninterest bearing demand deposits grew $7.6
million or 5.6 percent to $144.4 million.
TABLE 4:
Changes in Average Interest Bearing Liabilities
(Dollars in thousands)
Increase/(Decrease) Increase/(Decrease)
2001 vs 2000 2000 vs 1999
------------------- -------------------
NOW $ 2,320 4.2% $(5,914) (9.6)%
Savings deposits 8,084 5.9 26,870 24.3
Money market
accounts 12,454 6.8 (21,961) (10.7)
Time deposits 9,062 2.2 13,226 3.3
Federal funds
purchased and
other short term
borrowings 12,868 33.2 297 0.8
Other borrowings (1,975) (4.7) 17,005 68.1
------- -------
Total $42,813 4.9% $29,523 3.5%
======= =======
TABLE 5:
Three-Year Summary
Average Balances, Interest Income and Expenses, Yields and Rates (1)
(Dollars in
thousands) 2001
- ---------- ----
Average Yield/
Balance Interest Rate
-------------------------
Earning assets:
Securities
Taxable $240,914 $13,482 5.60%
Nontaxable 5,287 419 7.93
-------------------------
246,201 13,901 5.65
Federal funds
sold and other
short term
investments 31,201 1,313 4.21
Loans (2) 831,093 65,901 7.93
--------------------------
Total Earning Assets 1,108,495 81,115 7.32
Allowance for loan
losses (7,187)
Cash and due from
banks 31,138
Bank premises and
equipment 16,057
Other assets 13,945
---------
$1,162.448
==========
Interest-bearing
liabilities:
NOW $58,246 $1,107 1.90%
Savings deposits 145,431 3,125 2.15
Money market
accounts 196,610 3,867 1.97
Time deposits 419,801 23,260 5.54
Federal funds
purchased and
other short
term borrowings 51,603 1,477 2.86
Other borrowings 40,000 2,566 6.42
------ ----- ----
911,691 35,402 3.88
Demand deposits 154,990
Other liabilities 5,285
----------
1,071,966
Shareholders'
equity 90,482
----------
$1,162,448
==========
Interest expense
as % of earning
assets 3.19%
Net interest
income/yield on
earning assets $45,713 4.12%
======= =====
Three-Year Summary (con't)
Average Balances, Interest Income and Expenses, Yields and Rates (1)
(Dollars in
thousands) 2000
- ---------- ----
Average Yield/
Balance Interest Rate
--------------------------
Earning Assets:
Securities
Taxable $214,096 $13,295 6.21%
Nontaxable 7,521 596 7.92
--------------------------
221,617 13,891 6.27
Federal funds
sold and other
short term
investments 8,251 501 6.07
Loans (2) 820,429 65,616 8.00
---------------------------
Total Earning Assets 1,050,297 80,008 7.62
Allowance for loan
losses (7,099)
Cash and due from
banks 30,258
Bank premises and
equipment 17,024
Other assets 14,300
----------
$1,104,780
==========
Interest-bearing
liabilities:
NOW $55,926 $1,135 2.03%
Savings deposits 137,347 4,380 3.19
Money market
accounts 184,156 3,944 2.14
Time deposits 410,739 23,418 5.70
Federal funds
purchased and
other short
term borrowings 38,735 2,048 5.29
Other borrowings 41,975 2,710 6.46
---------------------------
868,878 37,635 4.33
Demand deposits 144,362
Other liabilities 5,774
---------
1,019,014
Shareholders'
equity 85,766
----------
$1,104,780
==========
Interest expense
as % of earning 3.58%
assets
Net interest
income/yield on
earning assets $42,373 4.03%
======= =====
Three-Year Summary (con't)
Average Balances, Interest Income and Expenses, Yields and Rates (1)
(Dollars in
thousands) 1999
- ---------- ----
Average Yield/
Balance Interest Rate
--------------------------
Earning Assets:
Securities
Taxable $240,830 $14,330 5.95%
Non Taxable 10,551 882 8.36
--------------------------
251,381 15,212 6.05
Federal funds
sold and other
short term
investments 7,745 373 4.82
Loans (2) 743,010 58,329 7.85
--------------------------
Total Earning Assets 1,002,136 73,914 7.38
Allowance for loan
losses (6,713)
Cash and due from
banks 35,110
Bank premises and
equipment 17,213
Other assets 14,589
----------
$1,062,335
==========
Interest-bearing
liabilities:
NOW $61,840 $1,093 1.77%
Savings deposits 110,477 2,465 2.23
Money market
accounts 206,117 4,114 2.00
Time deposits 397,513 19,736 4.96
Federal funds
purchased and
other short
term borrowings 38,438 1,621 4.22
Other borrowings 24,970 1,433 5.74
------ ----- ----
839,355 30,462 3.63
Demand deposits 136,742
Other liabilities 5,767
-----
981,864
Shareholders'
equity 80,471
------
$1,062,335
==========
Interest expense
as % of earning
assets 3.04%
Net interest
income/yield on
earning assets $43,452 4.34%
======= =====
- -------------------------------
(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.
Provision for Loan Losses
- -------------------------
No provisioning was recorded in 2001, reflecting the Company's exceptional
credit quality, low nonperforming assets, and slower loan growth. Provisions of
$600,000 and $660,000 were recorded in 2000 and 1999, respectively. Loan losses
totaled $184,000 or 0.02 percent of average total loans in 2001 compared to
$252,000 or 0.03 percent of average total loans in 2000 and $133,000 or 0.02
percent of average total loans in 1999. These ratios are much better than the
banking industry as a whole.
The Company's loan portfolio mix has changed during 2001 (see Table 9-Loans
Outstanding). The Company intends to continue to vary its loan portfolio mix by
emphasizing higher yield commercial and consumer credits while reducing its
exposure to 1-4 family lower yield residential loans. These changes may result
in increased loan loss provisions should the increased exposure result in
greater inherent losses in the loan portfolio.
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. See "Nonperforming Assets" and "Allowance for Loan
Losses."
Noninterest Income
- ------------------
Table 6 shows noninterest income for the years indicated.
Noninterest income, excluding gains and losses from securities sales, totaled
$15,108,000 for 2001, an increase of $1,958,000 or 14.9 percent from a year ago.
Noninterest income was favorably impacted by growth in fee-based businesses.
Noninterest income accounted for 24.9 percent of net revenue, compared to 23.8
percent last year.
Market turmoil affected revenue from brokerage activities since late 2000 and
the trend continued in 2001 with consumers shifting from the purchase of
investment products to more conservative deposit products. In 2001 brokerage
revenue decreased $616,000 or 25.4 percent to $1,805,000. Trust income was lower
as well, declining $207,000 or 7.7 percent year over year to $2,497,000. The
Company expects to expand its customer relationships through sales of investment
management and brokerage products, including insurance.
The Company has been among the leaders in the production of residential mortgage
loans in its market. In order to improve profitability and better manage
interest rate risks, the Company began producing loans for third party permanent
investors in 2000. In 2001 mortgage banking fees from loan sales totaled $1.7
million and total fees earned from this business totaled $2,456,000, a 219.0
percent increase over year 2000. Significantly lower interest rates in 2001 were
partially responsible for loan production increasing from $90 million last year
to $155 million in 2001. Also, the Company utilized correspondent lenders whose
mortgage programs allowed for attractive rates and increased the Company's
market share. The higher volumes were processed by commissioned originators, as
well as the Company's branch personnel. The Company expects to derive fee income
growth in 2002 by increasing its market penetration and from expanded sources of
fees collected from this business. However, economic uncertainties could impact
the growth.
Greater usage of check cards by the Company's core deposit customers and an
increased cardholder base increased interchange income in 2001 to $735,000, an
increase of $307,000 or 71.7 percent from last year. Other deposit based
electronic funds transfer (EFT) income increased as well, by $85,000 or 37.4
percent to $312,000. Service charges on deposits increased $245,000 or 5.0
percent in 2001 to $5,110,000, largely due to an increasing core deposit base in
2001 from which to derive fees and greater analysis fees collected from
commercial customers as earnings credits declined in the lower interest rate
environment in 2001.
In its second year of operation, the Company's marine financing division
(Seacoast Marine Finance) produced $72.5 million in luxury yacht loans, up $30.0
million year over year, while adding $26.4 million in marine assets to the loan
portfolio and generating $743,000 in fees from the sale of out-of-market loans,
a $382,000 or 105.8 percent increase year over year. Seacoast Marine Finance is
headquartered in Ft. Lauderdale, Florida with an experience, seasoned team of
marine lending professionals in Florida, Texas and California. Seacoast Marine
Finance's marketing emphasis is on marine loans of $200,000 and greater. It is
believed that growth in revenue from this business will continue to exceed the
Company's other more traditional sources of fee income.
Noninterest income, excluding gains (losses) from sales of securities, totaled
$13,150,000 in 2000, an increase of $1,002,000 or 8.2 percent from 1999.
While service charges on deposits remained nearly unchanged in 2000 as compared
to the prior year, reflecting the intense competition from savings banks, other
commercial banks and non-banks, other sources of fees and commissions increased
$1,013,000 or 13.9 percent. The Company added two new sources for fee-based
income in 2000. Its new Seacoast Marine Finance division produced $42.5 million
in loans, of which $16.3 million were added to the loan portfolio and the
remainder were sold, increasing fee-based income by $361,000. The Company also
reorganized its traditional residential real estate portfolio lending division
into a mortgage banking business. By the fourth quarter of 2000, this business
generated $245,000 in revenue, a 41.6 percent increase over $173,000 earned in
the third quarter of 2000. Revenue from brokerage activities increased $92,000
or 3.9 percent and trust (fiduciary) income increased $215,000 or 8.6 percent in
2000, compared to prior year. Financial markets during 2000 reflected an
uncertainty with respect to economic growth and fear of Federal Reserve actions
and increased inflation. Even so, investment management revenue results were
favorable.
Proceeds from the sale of securities in 2001 totaled $154,018,000 with net gains
of $915,000 recognized. Proceeds from sales of securities in 2000 totaled
$10,203,000 and resulted in $12,000 in net losses. Proceeds from sales of
securities in 1999 summed to $60,106,000, including net gains of $309,000. Sales
in 2001 were transacted to restructure the portfolio to take advantage of the
declining interest rate environment, to manage seasonal funding declines, and in
mid-to-late2001 to position the Company for possible future interest rate
increases. Proceeds from sales in 1999 were utilized primarily to fund lending
demand and manage seasonal funding declines.
Table 6:
Noninterest Income
(Dollars in thousands)
Year Ended % Change
---------- --------
2001 2000 1999 01/00 00/99
---- ---- ---- ----- -----
Service charges
on deposit
accounts $5,110 $4,865 $4,876 5.0% (0.2)%
Trust fees 2,497 2,704 2,489 (7.7) (8.6)
Mortgage banking fees 2,456 770 633 219.0 21.6
Brokerage commissions
and fees 1,805 2,421 2,329 (25.4) 4.0
Marine finance fee 743 361 0 105.8 n/m
Debit card income 735 428 249 71.7 71.9
Other deposit based
EFT fees 312 227 200 37.4 13.5
Other 1,450 1,374 1,372 5.5 0.1
------ ------ ------ ---- ---
15,108 13,150 12,148 14.9 8.2
Securities
gains(losses) 915 (12) 309 n/m n/m
------- ------- ------- --- ---
Total $16,023 $13,138 $12,457 22.0% 5.5%
======= ======= ======= ===== ====
n/m = not meaningful
NONINTEREST EXPENSES
- --------------------
Table 7 shows the Company's noninterest expenses for the years indicated.
The Company's overhead ratio decreased from 64.7 percent in 1999 to 62.8 percent
a year ago, and declined slightly in 2001 to 62.6 percent. This is reflective of
a series of initiatives undertaken to reduce overhead costs, particularly
staffing, and streamlined operational and procedural changes implemented over
the past two years. The Company expects to continue to pursue lower operating
overhead in future years and to continue the standardization of its systems and
procedures.
Although noninterest expenses increased by $3,183,000 or 9.1 percent to
$38,060,000 in 2001 compared to 2000, a disciplined control of expenses is
maintained. Salaries, wages and benefits increased $2,388,000 or 14.7 percent
year over year, mostly due to higher commissions and incentive compensation
related to the significantly improved performance. Also impacting salaries,
wages and benefits, group health insurance costs were $307,000 or 26.8 percent
higher and temporary services were higher by $129,000, principally in data
processing and loan operations. Base salaries increased $798,000 or 6.7 percent,
with staffing on a full-time equivalent basis increasing from 340 at the end of
2000 to 358 at December 31, 2001, including additional staff for the Company's
newest branch location at a WalMart store in Ft. Pierce, Florida. All other
overhead expenses increased $795,000 or 4.3 percent.
Outsourced data processing costs were $362,000 or 8.8 percent higher, totaling
$4,468,000. Of the increase, higher costs associated with the Company's core
data processing service provider of $100,000, software licensing and maintenance
of $102,000, and automatic teller machine (ATM) switch and transaction
processing of $91,000 were recorded. Outsourced data processing costs are
directly related to the number of transactions processed, which can be expected
to increase as the Company's business volumes grow and new products such as bill
pay, internet banking, etc. become more popular and the number of customer
accounts increases.
Marketing expenses, including sales promotion costs, ad agency production and
printing costs, newspaper and radio advertising, and other public relations
costs associated with the Company's efforts to market products and services,
increased by $191,000 or 11.1 percent to $1,908,000 for 2001, compared to a year
ago. Of the increase, $62,000 was for higher sales promotion costs, $41,000 for
direct mail campaigns and $30,000 for local community support.
For 2000, noninterest expenses totaling $34,877,000 were $1,106,000 or 3.1
percent lower than in 1999. Salaries and wages decreased $805,000 or 5.8 percent
and employee benefits declined $621,000 or 16.4 percent. Most of the decrease in
wage and benefit costs was related to lower performance award incentive accruals
for 2000 and lower group health claims in 2000.
During 2000, occupancy expenses and furniture and equipment expenses on an
aggregate basis increased $279,000 or 5.4 percent versus the prior year. Most of
the increase resulted from higher lease payments for premises and additional
computer equipment. In July 2000, the Company's bank subsidiary opened a branch
on U.S. 1 in northern Martin County near the St. Lucie County line, at the same
time closing a branch in St. Lucie County approximately one-half mile from the
new branch. Overlap during the year of leasing the newly opened and closed
branch offices, as well as costs associated with the new Seacoast Marine Finance
office in Ft. Lauderdale, accounted for a portion of the increase.
Increased computer hardware costs during the third and fourth quarter of 2000
included the installation of new imaging equipment in September 2000 to more
efficiently handle transactional information, produce customer statements and
perform research. Using this technology has provided a reduction in staffing and
postage, and has enhanced customer service, further establishing the Company's
banking subsidiary's image as the "SuperCommunity Bank." Outside data processing
costs increased $410,000 or 11.1 percent in 2000, compared to prior year.
Costs associated with foreclosed and repossessed asset management and
disposition decreased $94,000 in 2000, a reflection of low nonperforming asset
balances (see "Nonperforming Assets"). Legal and professional fees decreased
$395,000 or 25.1 percent from last year. Most of this decrease was related to an
expense in 1999 for hiring an outside consulting service to partner with the
Company in assessing a number of internal processes for overhead improvement and
revenue enhancement.
TABLE 7:
Noninterest Expenses
(Dollars in thousands)
Year Ended % Change
---------- --------
2001 2000 1999 01/00 00/99
---- ---- ---- ----- -----
Salaries and wages $14,776 $13,077 $13,882 13.0% (5.8)%
Pension and other employee
benefits 3,866 3,177 3,798 21.7 (16.4)
Occupancy 3,358 3,343 3,135 8.8 6.6
Furniture and equipment 2,190 2,108 2,037 0.5 3.5
Outsourced data processing
Costs 4,468 4,106 3,696 3.9 11.1
Marketing 1,908 1,717 1,653 11.1 3.9
Legal and professional fees 1,230 1,177 1,572 4.5 (25.1)
FDIC assessments 177 184 146 (3.8) 26.0
Foreclosed and repossessed
asset management and
dispositions 83 91 185 (8.8) (50.8)
Amortization of intangibles 552 636 671 (13.2) (5.2)
Other 5,452 5,261 5,208 3.6 1.0
----- ----- -----
TOTAL $38,060 $34,877 $35,983 9.1% 3.1%
======= ======= =======
INCOME TAXES
- ------------
Income taxes as a percentage of income before taxes were 39.8 percent for 2001,
38.8 percent for 2000, and 37.7 percent for 1999. The increase in rates
year-to-year can be attributed to higher state income taxes, a result of lower
tax credit, lower tax exempt income, and the Company's effective federal tax
rate increasing due to adjusted income before taxes exceeding $18 million.
The Company has deferred tax assets, for which no valuation allowance is
required, because the majority of the asset is deemed to be temporary and
sufficient taxable income exists in the carry-back years to recover the asset.
FINANCIAL CONDITION
- -------------------
Total assets increased $74,591,000 or 6.1 percent to $1,225,964,000 in 2001
after increasing $70,341,000 or 6.5 percent to $1,151,373,000 in 2000.
CAPITAL RESOURCES
- -----------------
Table 8 summarizes the Company's capital position and selected ratios. The
Company's ratio of shareholders' equity to period end assets was 7.63 percent at
December 31, 2001, compared with 7.32 percent one year earlier. The Company
manages the size of equity through a program of share repurchases of its
outstanding Class A Common Stock. In treasury stock at December 31, 2001, there
were 529,519 shares totaling $17,239,000 compared to 466,603 shares or
$14,470,000 a year ago.
TABLE 8:
Capital Resources
(Dollars in thousands)
December 31 2001 2000 1999
- ---------------------------------------------------------------
TIER 1 CAPITAL
Common stock $ 518 $ 518 $ 518
Additional paid in capital 27,924 27,831 27,785
Retained earnings 80,886 72,562 66,174
Treasury stock (17,239) (14,470) (11,640)
Valuation allowance (12) (173) (849)
Intangibles (2,976) (3,432) (4,021)
------- ------- -------
TOTAL TIER 1 CAPITAL 89,101 82,836 77,967
TIER 2 CAPITAL
Allowance for loan losses,
as limited 7,034 7,218 6,870
----- ----- -----
TOTAL TIER 2 CAPITAL 7,034 7,218 6,870
----- ----- -----
TOTAL RISK-BASED CAPITAL $ 96,135 $ 90,054 $ 84,837
======== ======== ========
Risk weighted assets $760,640 $741,590 $693,016
======== ======== ========
Tier 1 risk based capital
ratio 11.71% 11.17% 11.25%
Total risk based capital ratio 12.64 12.14 12.24
Regulatory minimum 8.00 8.00 8.00
Tier 1 capital to adjusted
total assets 7.49 7.44 7.32
Regulatory minimum 4.00 4.00 4.00
Shareholders' equity to assets 7.63 7.32 7.13
Average shareholders' equity
to average total assets 7.78 7.76 7.57
LOAN PORTFOLIO
- --------------
Table 9 shows total loans (net of unearned income) by category outstanding at
the indicated dates.
As part of its ongoing balance sheet and interest rate risk management, the
Company securitized $19.6 million of its residential loans and sold the
investment security. This factor and the conversion from a traditional
residential real estate portfolio lender to a mortgage banking model of selling
current loan production resulted in a decline in the Company's residential loan
portfolio. During 2001, the Company sold $97.2 million in residential loans,
compared to $13.3 million in 2000 and $28.0 million in 1999. The Company also
sold $46.1 million in marine loans produced by Seacoast Marine Finance to other
financial institutions, compared to $26.2 million in 2000 when the division
first opened for business. In addition, the loan portfolio experienced higher
prepayments as a result of significantly lower interest rates in 2001.
Total loans decreased $59,519,000 or 7.0 percent in 2001 compared to an increase
of $66,382,000 or 8.5 percent in 2000. At December 31, 2001, the Company's
mortgage loan balances secured by residential properties amounted to
$363,120,000 or 46.3 percent of total loans (versus 55.3 percent a year ago).
The next largest concentration was loans secured by commercial real estate
totaling $255,057,000 or 32.5 percent (versus 25.6 percent a year ago). The
Company's commercial real estate lending strategy stresses quality loan growth
from local businesses, professionals, experienced developers and investors, with
high net worths that serve as secondary sources for repayment. At December 31,
2001, the Company had funded commercial real estate loans totaling $255.1
million. This amount was comprised of the following types of loans:
In millions Amount
------------------------------------ -------------------
Healthcare facilities $ 36.7
Office buildings 34.9
Land development 32.4
Retail trade 32.2
Industrial 19.3
Multifamily 17.4
Land - unimproved 13.6
Lodging 3.2
Miscellaneous 65.4
------------------------------------ -------------------
TOTAL $255.1
Loans and commitments for 1-4 family residential properties and commercial real
estate are generally secured with first mortgages on property, with the loan to
fair value of the property not exceeding 80 percent on the date the loan is
made. The Company was also a creditor for consumer loans to individual customers
(primarily secured by motor vehicles) totaling $102,760,000 and real estate
construction loans totaling $15.6 million which are secured by residential
properties.
The Treasure Coast is a residential community with commercial activity centered
in retail and service businesses serving the local residents and seasonal
visitors. 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, 2001, approximately $139 million or 38 percent of the Company's
mortgage loan balances secured by residential properties were adjustable.
Of the approximate $155 million of new residential loans originated in 2001, $29
million were adjustable rate and $126 million were fixed rate. Loans secured by
residential properties having fixed rates totaled approximately $224 million at
December 31, 2001, of which 15- and 30-year mortgages totaled approximately $97
million and $85 million, respectively. Remaining fixed rate balances were
comprised of home improvement loans with maturities less than 15 years.
The Company's historical net charge offs for residential loans has been low. For
2001, net recoveries totaling $12,000 were recorded. The Company considers
residential mortgages less susceptible to adverse effects from a downturn in the
real estate market, especially given the area's large percentage of retired
persons.
Fixed rate and adjustable rate loans secured by commercial real estate total
approximately $111 million and $89 million, respectively, at December 31, 2001.
Commercial lending activities are directed principally towards businesses whose
demand for funds are within the Company's lending limits, such as small to
medium sized professional firms, retail and wholesale outlets, and light
industrial and manufacturing concerns. Such businesses typically are smaller,
often have short operating histories and do not have the sophisticated record
keeping systems of larger entities. Most of such loans are secured by real
estate used by such businesses, although certain lines are unsecured. Such loans
are subject to the risks inherent to lending to small to medium sized businesses
including the effects of a sluggish local economy, possible business failure,
and insufficient cash flows. The Company's commercial loan portfolio totaled
$36,618,000 at December 31, 2001 compared to $39,465,000 at December 31, 2000.
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.
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.
At December 31, 2000, the Company's mortgage loan balances secured by
residential properties amounted to $467,437,000 or 55.3 percent of total loans.
The next largest concentration was loans secured by commercial real estate
totaling $216,248,000 or 25.6 percent. The Company was also a creditor for
consumer loans to individual customers (primarily secured by motor vehicles)
totaling $90,744,000 and real estate construction loans totaling $16.7 million
which are secured by residential properties.
Loans secured by residential properties having fixed rates totaled approximately
$274 million at December 31, 2000, of which 15- and 30-year mortgages totaled
approximately $114 million and $110 million, respectively. Again, remaining
fixed rate balances were comprised of home improvement loans with maturities
less than 15 years.
TABLE 9:
Loans Outstanding
(Dollars in thousands)
December 31 2001 2000 1999 1998 1997
- ----------- ---- ---- ---- ---- ----
Real estate mortgage $574,585 $671,424 $623,472 $574,895 $492,410
Real estate construction 70,630 42,633 42,899 22,877 16,363
Commercial and financial 36,617 39,465 33,119 31,908 31,239
Installment loans to
individuals 102,760 90,744 78,013 71,506 73,673
Other loans 435 280 661 364 245
-------- -------- -------- -------- --------
TOTAL $785,027 $844,546 $778,164 $701,550 $613,930
======== ======== ======== ======== ========
TABLE 10:
Loan Maturity Distribution
(Dollars in thousands)
Commercial,
Financial & Real Estate
December 31, 2001 Agricultural Construction Total
- -----------------------------------------------------------------
In one year or less $13,548 $62,411 $75,959
After one year but
within five years:
Interest rates are
floating or
adjustable 2,341 5,710 8,051
Interest rates are fixed 13,028 2,330 15,358
In five years or more:
Interest rates are
floating or
adjustable 1,640 0 1,640
Interest rates are fixed 6,060 179 6,239
------- ------- --------
TOTAL $36,617 $70,630 $107,247
======= ======= ========
ALLOWANCE FOR LOAN LOSSES
- -------------------------
Table 11 provides certain information concerning the Company's allowance for
loan losses for the years indicated.
The allowance for loan losses totaled $7,034,000 at December 31, 2001, $184,000
lower than one year earlier. The allowance for loan losses as a percentage of
nonaccrual loans was 290.3 percent at December 31, 2001, compared to 343.9
percent at December 31, 2000. The model utilized to analyze the adequacy of the
allowance for loan losses takes into account such factors as credit quality,
internal controls, audit results, staff turnover, local market economics and
loan growth. The allowance as a percent of loans outstanding increased slightly
from 0.85 percent to 0.90 percent during 2001. The resulting allowance 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. In 2001, net charge offs totaled
$184,000, compared to $252,000 a year ago.
TABLE 11:
Summary of Loan Loss Experience
(Dollars in thousands)
Year Ended December 31 2001 2000 1999 1998 1997
- ---------------------- ---- ---- ---- ---- ----
Allowance for loan losses
Beginning balance $7,218 $6,870 $6,343 $5,363 $5,657
Provision for loan losses 0 600 660 1,710 913
Charge offs:
Commercial and
financial 32 98 2 112 443
Consumer 395 432 458 901 936
Commercial real estate 27 35 46 137 137
Residential real estate 2 78 120 42 38
--- --- --- ----- -----
Total Charge Offs 456 643 626 1,192 1,554
Recoveries:
Commercial and
financial 54 93 111 117 76
Consumer 182 226 230 211 197
Commercial real estate 22 39 136 109 63
Residential real estate 14 33 16 25 11
-- -- -- -- --
Total Recoveries 272 391 493 462 347
--- --- --- --- ---
Net loan charge offs 184 252 133 730 1,207
--- --- --- ----- -----
Ending Balance $7,034 $7,218 $6,870 $6,343 $5,363
====== ====== ====== ====== ======
Loans outstanding at end of
year* $785,027 $844,546 $778,164 $701,550 $613,930
Ratio of allowance for loan
losses to loans outstanding
at end of year 0.90% 0.85% 0.88% 0.90% 0.87%
Daily average loans
outstanding* $831,093 $820,429 $743,010 $669,417 $595,884
Ratio of net charge offs to
average loans outstanding 0.02% 0.03% 0.02% 0.11% 0.20%
* Net of unearned income.
- --------------------------------------------------------
Table 12 summarizes the Company's allocation of the allowance for loan losses to
each type of loan and information regarding the composition of the loan
portfolio at the dates indicated.
The allowance for loan losses represents management's estimate of an amount
adequate in relation to the risk of future losses inherent in the loan
portfolio. In its continuing evaluation of the allowance and its adequacy,
management considers, among other factors, the Company's loan loss experience,
the amount of past due and nonperforming loans, current and anticipated economic
conditions, and the values of certain loan collateral, and other assets. The
size of the allowance also reflects the large amount of permanent residential
loans held by the Company whose historical charge offs and delinquencies have
been superior by any comparison.
Concentration of credit risk, discussed on pages 20-22 of this discussion and
analysis, may affect the level of the allowance. Concentrations typically
involve loans to one borrower, an affiliated group of borrowers, borrowers
engaged in or dependent upon the same industry, or a group of borrowers whose
loans are predicated on the same type of collateral. The Company's significant
concentration of credit is a collateral concentration of loans secured by real
estate. At December 31, 2001, the Company had $645 million in loans secured by
real estate, representing 82.1 percent of total loans, down from 84.6 percent at
December 31, 2000. In addition, the Company is subject to a geographic
concentration of credit because it operates in southeastern Florida. Although
not material enough to constitute a significant concentration of credit risk,
the Company has meaningful credit exposure to real estate developers and
investors. Levels of exposure to this industry group, together with an
assessment of current trends and expected future financial performance, are
carefully analyzed in order to determine an adequate allowance level. Problem
loan activity for this exposure needs to be evaluated over the long term to
include all economic cycles when determining an adequate allowance level.
While it is the Company's policy to charge off in the current period loans in
which a loss is considered probable, there are additional risks of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy as well
as conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate and imprecise. It is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance for loan
losses and the size of the allowance for loan losses in comparison to a group of
peer companies identified by the regulatory agencies.
At December 31, 2001, the Company's allowance equated to 12.2 times average
charge offs for the last three years. In contrast, the allowance equated to
approximately two times charge offs in the early 1990's when Florida experienced
a real estate economic decline. 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.
TABLE 12:
ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
Allocation by Laon Type
December 31 2001 2000 1999 1998 1997
- ----------- ---- ---- ---- ---- ----
Commercial and
financial loans $ 738 $ 844 $ 677 $ 576 $ 363
Real estate loans 4,924 4,970 4,913 4,464 3,347
Installment loans 1,372 1,404 1,280 1,303 1,653
------ ------ ------ ------ ------
Total $7,034 $7,218 $6,870 $6,343 $5,363
====== ====== ====== ====== ======
Year End Loan Types as a Percent of Total Loans
December 31 2001 2000 1999 1998 1997
- ----------- ---- ---- ---- ---- ----
Commercial and
financial loans 4.7% 4.7% 4.3% 4.6% 5.1%
Real estate loans 82.1 84.6 85.6 85.3 82.9
Installment loans 13.2 10.7 10.1 10.1 12.0
------ ------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
NONPERFORMING ASSETS
- --------------------
Of the $2,423,000 in nonaccrual loans at December 31, 2001, 97 percent is
secured with real estate. In addition, nonaccrual loans totaling $357,000 at
December 31, 2001 were performing, however the Company has determined that the
collection of principal or interest in accordance with the original terms of
such loans is uncertain and has placed such loans on nonaccrual status.
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. Other real estate owned at December 31, 2001 was comprised of one
property, totaling $119,000, representing 75 percent or less of its fair market
value.
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 2001 2000 1999 1998 1997
- ----------- ---- ---- ---- ---- ----
Nonaccrual loans (1) $2,423 $2,099 $2,407 $2,418 $2,254
Renegotiated loans 0 0 0 0 0
Other real estate owned 119 346 339 288 536
------ ------ ------ ------ ------
Total Nonperforming Assets $2,542 $2,445 $2,746 $2,706 $2,790
====== ====== ====== ====== ======
Amount of loans outstanding
at end of year (2) $785,027 $844,546 $778,164 $701,550 $613,930
Ratio of total nonperforming
assets to loans outstanding
and other real estate owned
at end of period 0.32% 0.29% 0.35% 0.39% 0.45%
Accruing loans past due
90 days or more $134 $108 $498 $329 $478
- -----------------
(1) Interest income that could have been recorded during 2001 related to
nonaccrual loans was $171, none of which was included in interest income or net
income. All nonaccrual loans are secured.
(2) Net of unearned income.
LIQUIDITY MANAGEMENT
- --------------------
Contractual maturities for assets and liabilities are reviewed to meet current
and future liquidity requirements. Sources of liquidity, both anticipated and
unanticipated, are maintained through a portfolio of high quality marketable
assets, such as residential mortgage loans, investment securities, and federal
funds sold. The Company has access to federal funds and Federal Home Loan Bank
(FHLB) 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, 2001, the
Company had available lines of credit of $140,500,000. At December 31, 2001, the
Company had $185,711,000 of United States Treasury and Government agency
securities and mortgage backed securities not pledged and available for use
under repurchase agreements. At December 31, 2000, the amount of securities
available and unpledged was $63,195,000.
Liquidity, as measured in the form of cash and cash equivalents, totaled
$92,114,000 at December 31, 2001, compared to $72,505,000 at December 31, 2000.
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.
DEPOSITS AND BORROWINGS
- -----------------------
Total deposits increased $58,065,000 or 6.1 percent to $1,015,154,000 at
December 31, 2001, compared to one year earlier. In comparison to 1999, deposits
increased $51,129,000 or 5.6 percent in 2000 to $957,089,000. Certificates of
deposit decreased $17,726,000 or 4.3 percent to $398,797,000 over the past
twelve months, lower cost interest bearing deposits (NOW, savings and money
market accounts) increased $63,438,000 or 16.7 percent to $444,229,000, and
noninterest bearing demand deposits increased $12,353,000 or 7.7 percent to
$172,128,000. Lower interest rates, an uncertain economic environment, and
recent turmoil in financial markets have aided growth in deposits as customers
seek the stability of bank products. The Company's success in marketing
desirable deposit products in this environment, in particular Investor NOW and
Money Manager offerings, enhanced growth in lower cost interest bearing
deposits. See "Net Interest Income".
The number of sweep repurchase accounts remained unchanged from a year ago;
however, the incremental dollar amount invested by customers under repurchase
agreements has increased. Repurchase agreement balances increased $6,684,000 or
10.3 percent to $71,704,000 at December 31, 2001.
At December 31, 2001, other borrowings were the same year over year at
$40,000,000, entirely comprised of funding from the FHLB.
Table 14:
Maturity of Certificates of Deposit of $100,000 or More
(Dollars in thousands)
% of % of
December 31 2001 Total 2000 Total
- ----------------------------------------------------------
Maturity Group:
Under 3 months $26,709 28.6% $13,840 15.0%
3 to 6 months 24,049 25.8 17,973 19.5
6 to 12 months 22,811 24.5 24,395 26.4
Over 12 months 19,635 21.1 36,075 39.1
------- ------ ------- ------
Total $93,204 100.0% $92,283 100.0%
======= ====== ======= ======
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.
SECURITIES
- ----------
Information relating to yields, maturities, carrying values, market values and
unrealized gains (losses) of the Company's securities is set forth in Tables
15-19.
At December 31, 2001, the Company had $278,481,000 of securities held for sale
or 91.6 percent of total securities compared to $182,230,000 or 87.5 percent at
December 31, 2000. Total securities increased $95,839,000 or 46.0 percent in
2001, reflecting slower loan growth combined with a 6.1 percent increase in
deposits. During 2001, proceeds from the sale of securities totaled
$154,018,000. Maturities in 2001 totaled $100,816,000 and purchases totaled
$350,395,000. With the Federal Reserve's policy shift to decreasing interest
rates, the Company transacted sales of certain securities to restructure its
portfolio to take advantage of the lower interest rate environment in 2001 while
posturing the portfolio to limit exposure to possible rising rates in the
future.
The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," on January
1, 2001. There was no financial impact on earnings or other comprehensive income
as a result of the adoption. However, the Company did reclassify during the
first quarter of 2001 $12,510,000 of securities available for sale previously
classified as held to maturity in accordance with SFAS No. 115.
Management controls the Company's interest rate risk by maintaining a low
average duration for the securities portfolio and with securities returning
principal monthly which can be reinvested. The average life of the portfolio at
December 31, 2001 was 3.8 years compared to 3.4 years in 2000.
At December 31, 2001, the Company had unrealized net gains of $3,041,000 or 1.0
percent of amortized cost. At December 31, 2000, unrealized net losses were
$3,372,000. The Federal Reserve increased rates 100 basis points in 2000 and
decreased rates 450 basis points most recently, over the period December 2000 to
December 2001. The increase in rates in 2000 did not affect rates for
instruments with maturities over 2 years significantly, but recent rate declines
did provide appreciation in the market value of the Company's securities
portfolio.
Company management considers the overall quality of the securities portfolio to
be high. No securities are held which are not traded in liquid markets.
TABLE 15:
Securities Held For Sale
(In thousands)
At December 31, 2001
------------------------------------------------
Amortized Fair Unrealized Unrealized
Cost Value Gains Losses
===============================================================================
U.S. Treasury and other U.S.
government agencies and
corporations
2001 $ 2,499 $ 2,561 $ 62 -
2000 20,996 20,768 - (228)
Mortgage-backed and asset
backed securities
2001 268,197 270,495 2,779 (481)
2000 129,619 126,620 18 (3,017)
Mutual Funds
2001 300 281 - (19)
2000 23,881 23,662 - (219)
Other
2001 7,485 7,485 - -
2000 7,734 7,672 - (62)
-----------------------------------------------
Total Securities Held for
Sale
2001 $278,481 $280,822 $2,841 $ (500)
2000 182,230 178,722 18 (3,526)
===============================================
- -------------------------------------------------------------------------------
TABLE 16:
Securities Held For Investment
(In thousands)
At December 31, 2001
------------------------------------------------
Amortized Fair Unrealized Unrealized
Cost Value Gains Losses
===============================================================================
Mortgage-backed and asset
backed securities
2001 $20,793 $21,359 $576 $(10)
2000 19,528 19,562 113 (79)
Obligations of States and
Political Subdivisions
2001 4,737 4,871 134 -
2000 6,414 6,516 102 -
-----------------------------------------------
Total Securities Held for
Investment
2001 $25,530 $26,230 $710 $(10)
2000 25,942 26,078 215 (79)
===============================================
- -------------------------------------------------------------------------------
TABLE 17:
Maturity Distribution of Securities Held for Investment
(Dollars in Thousands)
At December 31, 2001
--------------------------------------------------
Average
1 Year 1-5 5-10 Maturity
Or Less Years Years Total In Years
===============================================================================
Amortized Cost
Mortgage-backed and asset
backed securities $ 8 $4,694 $16,091 $20,793 7.39
Obligations of States and
Political Subdivisions 495 2,587 1,665 4,737 2.66
--------------------------------------
Total Securities Held for
Investments $493 $7,281 $17,756 $25,530 6.51
================================================
Fair Value
Mortgage-backed and asset
backed securities $ 9 $4,877 $16,473 $21,359
Obligations of States and
Political Subdivisions 492 2,662 1,717 4,871
--------------------------------------
Total Securities Held for
Investments $501 $7,539 $18,190 $26,230
======================================
Weighted Average Yield (FTE)
Mortgage-backed and asset
backed securities 4.93% 6.63% 3.47% 4.19%
Obligations of States and
Political Subdivisions 7.07% 8.03% 7.99% 7.92%
Total Securities Held for
Investments 7.03% 7.13% 3.90% 4.88%
======================================
- ------------------------------------------------------------------------------
TABLE 18:
Maturity Distribution of Securities Held for Sale
(Dollars in Thousands)
At December 31, 2001
--------------------------------------------------
1 Year 1-5 5-10 After 10
Or Less Years Years Years
===============================================================================
Amortized Cost
U.S. Treasury and other U.S.
Government agencies and
corporations $ 1,004 $ 1,495
Mortgage-backed and asset
backed securities 59,937 177,638 $15,385 $15,237
Mutual Funds
Other
------------------------------------------------
Total Securities Held for
Sale $60,941 $179,133 $15,385 $15,237
================================================
Fair Value
U.S. Treasury and other U.S.
Government agencies and
corporations $ 1,030 $ 1,531
Mortgage-backed and asset
backed securities 60,202 179,430 $15,457 $15,406
Mutual Funds
Other
------------------------------------------------
Total Securities Held for
Sale $61,232 $180,961 $15,457 $15,406
================================================
Weighted Average Yield (FTE)
U.S. Treasury and other U.S.
Government agencies and
corporations 4.73% 4.25%
Mortgage-backed and asset
backed securities 3.44% 5.27% 4.19% 2.97%
Mutual Funds
Other
------------------------------------------------
Total Securities Held for
Sale 3.46% 5.27% 4.19% 2.97%
================================================
- -------------------------------------------------------------------------------
Continued.....
Maturity Distribution of Securities Held for Sale
(Dollars in Thousands)
At December 31, 2001
--------------------------------------------------
No Average
Contractual Maturity
Maturity Total In Years
===============================================================================
Amortized Cost
U.S. Treasury and other U.S.
Government agencies and
corporations $ 2,499 1.20
Mortgage-backed and asset
backed securities 268,197 3.52
Mutual Funds $ 300 300 **
Other 7,485 7,485 *
--------------------------
Total Securities Held for
Sale $7,785 $278,481 3.50
==========================================
Fair Value
U.S. Treasury and other U.S.
Government agencies and
corporations $ 2,561
Mortgage-backed and asset
backed securities 270,495
Mutual Funds $ 281 281
Other 7,485 7,485
--------------------------
Total Securities Held for
Sale $7,766 $280,822
==========================
Weighted Average Yield (FTE)
U.S. Treasury and other U.S.
Government agencies and
corporations 4.44%
Mortgage-backed and asset
backed securities 4.67%
Mutual Funds 4.77% 4.77%
Other 5.57% 5.57%
------------------------------------------------
Total Securities Held for
Sale 5.54% 4.69%
================================================
- -------------------------------------------------------------------------------
*Other Securities excluded from calculated average for total securities
**Contractual maturity assumed to be immediate for total average years to
maturity calculation
INTEREST RATE SENSITIVITY
- -------------------------
Fluctuations in rates may result in changes in the fair market value of the
Company's financial instruments, cash flows and net interest income. This risk
is managed using simulation modeling to measure interest rate risk and evaluate
strategies. The objective is to optimize the Company's financial position,
liquidity, and net interest income while limiting their volatility.
Senior management regularly reviews the overall interest rate risk position and
implements strategies to manage the risk. The Company has determined that an
acceptable level of interest rate risk would be for net interest income to
fluctuate no more than 6 percent, given a change in interest rates (up or down)
of 200 basis points. Based on the Company's most recent ALCO model simulations,
net interest income would decline 1.5 percent if interest rates would
immediately rise 200 basis points. It has been the Company's experience that
non-maturity core deposit balances are stable and subjected to limited repricing
when interest rates increase or decrease within a range of 200 basis points.
On December 31, 2001, 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 22.2 percent.
The computations of interest rate risk do not necessarily include certain
actions management may undertake to manage this risk in response to changes in
interest rates. Derivative financial instruments, such as interest rate swaps,
options, caps, floors, futures and forward contracts can and may be utilized as
components of the Company's past risk management profile. The Company does not
presently use interest rate protection products in managing its interest rate
sensitivity.
TABLE 19:
INTEREST RATE SENSITIVITY ANALYSIS (1)
(Dollars in thousands) 0-3 4-12 1-5 Over 5
December 31, 2001 Months Months Years Years Total
Federal funds sold $ 45,010 $ 0 $ 0 $ 0 $ 45,010
Securities (2) 88,840 104,696 100,779 9,696 304,011
Loans (3) 152,311 194,402 377,860 58,031 782,604
----------------------------------------------------
Earning assets 286,161 299,098 478,639 67,727 1,131,625
Savings deposits (4) 444,229 0 0 0 444,229
Certificates of deposit 117,083 203,845 77,869 0 398,797
Borrowings 71,704 0 25,000 15,000 111,704
----------------------------------------------------
Interest bearing liabilities 633,016 203,845 102,869 15,000 954,730
----------------------------------------------------
Interest sensitivity gap $(346,855) $ 95,253 $375,770 $ 52,727 $ 176,895
====================================================
Cumulative gap $(346,855) $(251,602) $124,168 $176,895
====================================================
Ratio of cumulative gap to (30.7) (22.2) 11.0 15.6
total earning assets (%)
Ratio of earning assets to
interest bearing 45.2 146.7 465.3 451.5
liabilities (%)
- --------------------------------------------------------------------------------
1. The repricing dates may differ from maturity dates for certain assets due to
prepayment assumptions.
2. Securities are stated at amortized cost.
3. Excludes nonaccrual loans.
4. This category is comprised of NOW, savings, and money market deposits. If NOW
and savings deposits (totaling $232,297) were deemed to be repriceable in
"4-12 months," the interest sensitivity gap and cumulative gap would be
$114,558, indicating 10.1% of earning assets and 71.4% of earning assets to
interest bearing liabilities for the "0-3 months" category.
================================================================================
SELECTED QUARTERLY INFORMATION
Quarterly Consolidated Income Statement
================================================================================
(Dollars in thousands, 2001 Quarters
except per share data) -------------
Fourth Third Second First
- -----------------------------------------------------------------------------
Net interest income:
Interest income $19,361 $20,137 $20,721 $20,676
Interest expense 7,564 8,687 9,373 9,778
--------------------------------------
Net interest income 11,797 11,450 11,348 10,898
Provision for loan losses 0 0 0 0
--------------------------------------
Net interest income after provision
for losses 11,797 11,450 11,348 10,898
Noninterest income:
Service charges on deposit accounts 1,364 1,261 1,268 1,217
Trust fees 587 589 618 703
Other service charges and fees 643 568 518 524
Brokerage commissions and fees 432 417 556 400
Other 1,132 726 889 696
Securities gains (losses) 340 8 422 145
--------------------------------------
Total noninterest income 4,498 3,569 4,271 3,685
Noninterest expenses:
Salaries and wages 3,905 3,792 3,677 3,402
Employee benefits 1,005 931 1,002 928
Occupancy 868 837 839 814
Furniture and equipment 531 531 565 563
Outsourced data processing costs 1,171 1,130 1,074 1,093
Marketing 462 456 472 518
Legal and professional fees 340 283 298 309
FDIC assessments 43 45 45 44
Foreclosed and repossessed asset
management and dispositions 14 8 36 25
Amortization of intangibles 138 138 138 138
Other 1,441 1,290 1,376 1,345
--------------------------------------
Total noninterest expenses 9,918 9,441 9,522 9,179
--------------------------------------
Income before income taxes 6,377 5,578 6,097 5,404
Provision for income taxes 2,610 2,195 2,395 2,126
--------------------------------------
Net income $ 3,767 $3,383 $3,702 $3,278
======================================
PER COMMON SHARE DATA
Net income diluted $ 0.79 $ 0.71 $ 0.78 $ 0.69
Net income basic 0.81 0.72 0.79 0.69
Cash dividends declared:
Class A common stock 0.30 0.28 0.28 0.28
Market price Class A common stock:
Low close 37.600 34.850 27.250 26.938
High close 47.000 43.390 35.150 30.563
Bid price at end of period 46.020 42.130 34.200 28.375
SELECTED QUARTERLY INFORMATION (con't)
- --------------------------------------
Quarterly Consolidated Income Statement
2000 Quarters
-------------
(Dollars in thousands,
except per share data) Fourth Third Second First
- ---------------------------------------------------------------------------
Net interest income:
Interest income $20,575 $20,206 $19,896 $19,053
Interest expense 10,136 9,920 9,255 8,324
------------------------------------
Net interest income 10,439 10,286 10,641 10,729
Provision for loan losses 150 150 150 150
------------------------------------
Net interest income after provision
for losses 10,289 10,136 10,491 10,579
Noninterest income:
Service charges on deposit accounts 1,283 1,269 1,165 1,148
Trust fees 672 686 669 677
Other service charges and fees 391 421 429 412
Brokerage commissions and fees 485 510 532 894
Other 423 335 437 312
Securities gains (losses) (16) 2 1 1
------------------------------------
Total noninterest income 3,238 3,223 3,233 3,444
Noninterest expenses:
Salaries and wages 3,292 3,173 3,242 3,370
Pension and other employee benefits 747 694 868 868
Occupancy 849 834 827 833
Furniture and equipment 553 529 506 520
Outsourced data processing costs 1,006 1,032 1,056 1,012
Marketing 448 416 408 445
Legal and professional fees 321 287 272 297
FDIC assessments 46 47 46 45
Foreclosed and repossessed asset
management and dispositions 1 42 (1) 49
Amortization of intangibles 138 162 168 168
Other 1,233 1,280 1,349 1,399
------------------------------------
Total noninterest expenses 8,634 8,496 8,741 9,006
------------------------------------
Income before income taxes 4,893 4,863 4,983 5,017
Provision for income taxes 1,957 1,881 1,920 1,910
------------------------------------
Net income $2,936 $2,982 $3,063 $3,107
====================================
PER COMMON SHARE DATA
Net income diluted $ 0.62 $ 0.62 $ 0.63 $ 0.64
Net income basic 0.62 0.63 0.64 0.64
Cash dividends declared:
Class A common stock 0.28 0.26 0.26 0.26
Market price Class A common stock:
Low close 24.250 25.500 25.000 24.750
High close 26.625 27.125 27.250 28.750
Bid price at end of period 26.500 26.000 27.000 25.375
- ----------------------------------------------------------------------------
================================================================================
SELECTED QUARTERLY INFORMATION
Consolidated Quarterly Average Balances, Yields and Rates (1)
================================================================================
2001 QUARTERS
Fourth Third
- -------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- -------------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $ 289,544 4.74% $234,675 5.66%
Nontaxable 4,755 7.82 5,126 7.88
----------------------------------------------
Total Securities 294,299 4.79 239,801 5.71
Federal funds sold and
other short term investments 21,001 2.04 29,871 3.53
Loans (2) 819,636 7.64 834,436 7.85
----------------------------------------------
Total Earning Assets 1,134,936 6.79 1,104,108 7.26
Allowance for loan losses (7,066) (7,171)
Cash and due from banks 34,982 30,517
Bank premises and equipment 15,584 15,941
Other assets 13,464 13,499
----------------------------------------------
$1,191,900 $1,156,894
==============================================
Liabilities and Shareholders' Equity
Interest bearing liabilities
NOW $ 61,541 1.39% $ 53,069 1.91%
Savings deposits 145,546 1.37 144,827 1.99
Money market accounts 217,198 1.52 203,379 2.03
Time deposits 408,551 5.01 421,180 5.39
Federal funds purchased and
other short term borrowings 59,634 1.38 43,421 2.68
Other borrowings 40,000 6.41 40,000 6.43
----------------------------------------------
Total Interest Bearing
Liabilities 932,470 3.22 905,876 3.80
Demand deposits 161,521 154,372
Other liabilities 5,406 5,443
----------------------------------------------
Total 1,099,397 1,065,691
Shareholders' equity 92,503 91,203
----------------------------------------------
$1,191,900 $1,156,894
==============================================
Interest expense as % of earning
assets 2.64% 3.12%
Net interest income as % of
earning assets 4.14 4.13
- -------------------------
(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.
Consolidated Quarterly Average Balances, Yields and Rates (1) (con't)
2001 QUARTERS
Second First
- -------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- -------------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $ 239,956 6.00% $198,550 6.30%
Nontaxable 5,365 8.13 5,917 7.84
--------------------------------------------
Total Securities 245,321 6.05 204,467 6.34
Federal funds sold and
other short term investments 29,844 4.46 44,358 5.55
Loans (2) 834,967 8.04 835,472 8.20
--------------------------------------------
Total Earning Assets 1,110,132 7.51 1,084,297 7.76
Allowance for loan losses (7,224) (7,288)
Cash and due from banks 30,474 28,513
Bank premises and equipment 16,187 16,529
Other assets 14,113 14,722
--------------------------------------------
$1,163,682 $1,136,773
============================================
Liabilities and Shareholders' Equity
Interest bearing liabilities
NOW $ 58,899 2.10% $59,509 2.24%
Savings deposits 146,002 2.36 145,354 2.90
Money market accounts 187,105 2.18 178,258 2.23
Time deposits 427,376 5.77 422,231 5.98
Federal funds purchased and
other short term borrowings 50,814 3.19 52,553 4.42
Other borrowings 40,000 6.41 40,000 6.42
--------------------------------------------
Total Interest Bearing
Liabilities 910,196 4.13 897,905 4.42
Demand deposits 158,470 145,427
Other liabilities 5,111 5,179
--------------------------------------------
Total 1,073,777 1,048,511
Shareholders' equity 89,905 88,262
--------------------------------------------
$1,163,682 $1,136,773
============================================
Interest expense as % of earning
assets 3.39% 3.66%
Net interest income as % of earning
assets 4.12% 4.10%
- --------------------------------------------------------------------------------
(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.
- ------------------------
Consolidated Quarterly Average Balances, Yields and Rates (1) (con't)
2000 QUARTERS
Fourth Third
- -------------------------------------------------------------------------------
Average Yield Average Yield
Balance /Rate Balance /Rate
- -------------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $ 211,108 6.29% $214,467 6.25%
Nontaxable 6,822 7.86 7,427 7.86
---------------------------------------------
Total Securities 217,930 6.34 221,894 6.30
Federal funds sold and
other short term investments 8,602 6.52 2,208 6.67
Loans (2) 837,035 8.10 830,947 8.01
---------------------------------------------
Total Earning Assets 1,063,567 7.72 1,055,049 7.64
Allowance for loan losses (7,195) (7,168)
Cash and due from banks 28,343 25,409
Bank premises and equipment 16,931 17,407
Other assets 14,753 14,140
---------------------------------------------
$1,116,399 $1,104,837
=============================================
Liabilities and Shareholders' Equity
Interest bearing liabilities
NOW $ 54,399 1.95% $ 50,210 2.20%
Savings deposits 140,903 3.27 139,691 3.33
Money market accounts 172,646 2.26 182,605 2.24
Time deposits 419,613 6.00 423,163 5.84
Federal funds purchased and other
short term borrowings 52,842 5.58 33,185 5.54
Other borrowings 40,000 6.60 46,611 6.55
---------------------------------------------
Total Interest Bearing
Liabilities 880,403 4.58 875,465 4.51
Demand deposits 142,591 137,097
Other liabilities 6,265 6,308
---------------------------------------------
Total 1,029,259 1,018,870
Shareholders' equity 87,140 85,967
---------------------------------------------
$1,116,399 $1,104,837
=============================================
Interest expense as % of earning
assets 3.79% 3.74%
Net interest income as % of earning
assets 3.93 3.90
- ------------------------
(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.
- ------------------------
Consolidated Quarterly Average Balances, Yields and Rates (1) (con't)
2000 QUARTERS
Second First
- ----------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Rate Balance Rate
- ----------------------------------------------------------------------------
Assets
Earning Assets
Securities
Taxable $ 216,122 6.19% $ 214,715 6.11%
Nontaxable 7,555 7.89 8,287 8.06
Total Securities 223,677 6.25 223,002 6.18
----------------------------------------
Federal funds sold and
other short term investments 11,062 5.96 11,196 5.71
Loans (2) 821,854 7.98 791,580 7.89
----------------------------------------
Total Earning Assets 1,056,593 7.60 1,025,778 7.50
Allowance for loan losses (7,103) (6,930)
Cash and due from banks 33,790 33,566
Bank premises and equipment 17,060 16,693
Other assets 13,999 14,310
----------------------------------------
$1,114,339 $1,083,417
========================================
Liabilities and Shareholders' Equity
Interest bearing liabilities
NOW $ 57,674 1.98% $61,501 2.24%
Savings deposits 139,477 3.28 129,252 2.84
Money market accounts 190,317 2.09 191,201 1.99
Time deposits 407,682 5.60 392,263 5.33
Federal funds purchased and other
short term borrowings 28,950 5.20 39,870 4.75
Other borrowings 49,970 6.40 31,289 6.21
----------------------------------------
Total Interest Bearing
Liabilities 874,070 4.26 845,376 3.96
Demand deposits 149,518 148,341
Other liabilities 5,519 4,993
----------------------------------------
Total 1,029,107 998,710
Shareholders' equity 85,232 84,707
----------------------------------------
$1,114,339 $1,083,417
========================================
Interest expense as % of earning
assets 3.52% 3.26%
Net interest income as % of earning
assets 4.08 4.24
- ------------
(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.
- --------------------------------------------------------------------------------
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 2001 financial statements have been audited by Arthur Andersen
LLP, certified public accountants. As part of their audit, Arthur Andersen LLP
evaluated the accounting systems and related internal accounting controls only
to the extent they deemed necessary to determine their auditing procedures.
Their audit would not necessarily disclose all internal accounting control
weaknesses because of the limited purpose of their evaluation. Although the
scope of Arthur Andersen LLP's audit did not encompass a complete review of and
they have not expressed an opinion on the overall system of internal accounting
control, they reported that their evaluation disclosed no conditions which they
consider to be material internal accounting control weaknesses.
The Board of Directors pursues its oversight role for accounting and internal
accounting control matters through an Audit Committee of the Board of Directors
comprised entirely of outside Directors. The Audit Committee meets periodically
with management, internal auditors and independent accountants. The independent
accountants and internal auditors have full and free access to the Audit
Committee and meet with it privately, as well as with management present, to
discuss internal control accounting and auditing matters.
/s/ Dennis S. Hudson, III
- -------------------------
Dennis S. Hudson, III
President and Chief Executive Officer
/s/ William R. Hahl
- -------------------
William R. Hahl
Executive Vice President and Chief Financial Officer
/s/ John R. Turgeon
- -------------------
John R. Turgeon
Senior Vice President and Controller
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 (a Florida corporation) and subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. 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 auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
West Palm Beach, Florida,
January 14, 2002.
CONSOLIDATED STATEMENTS OF INCOME
Seacoast Banking Corporation of Florida and Subsidiaries
(Dollars in thousands, except share data)
Year Ended December 31 2001 2000 1999
- ---------------------------------------------------------------------
Interest Income
Interest on securities
Taxable $ 13,482 $13,295 $14,330
Nontaxable 285 413 605
Interest and fees on loans 65,815 65,521 58,243
Interest on federal funds sold 1,313 501 373
----------------------------------
Total Interest Income 80,895 79,730 73,551
Interest Income
Interest on deposits 8,099 9,459 7,672
Interest on time certificates 23,260 23,418 19,736
Interest on borrowed money 4,043 4,758 3,054
----------------------------------
Total Interest Expense 35,402 37,635 30,462
----------------------------------
Net Interest Income 45,493 42,095 43,089
Provision for loan losses 0 600 660
----------------------------------
Net Interest Income After Provision
for Loan Losses 45,493 41,495 42,429
Noninterest income
Securities gains 915 (12) 309
Other 15,108 13,150 12,148
Noninterest expenses 38,060 34,877 35,983
----------------------------------
Income Before Income Taxes 23,456 19,756 18,903
Provision for income taxes 9,326 7,668 7,119
----------------------------------
Net Income $ 14,130 $12,088 $11,784
==================================
- ---------------------------------------------------------------------
Per Share Data
Net income per share common stock
Diluted $ 2.96 $ 2.51 $ 2.40
Basic 3.00 2.53 2.43
==================================
Average shares outstanding
Diluted 4,774,843 4,814,592 4,909,154
Basic 4,703,414 4,781,215 4,844,943
- ---------------------------------------------------------------------
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Seacoast Banking Corporation of Florida and Subsidiaries
(Dollars in thousands)
December 31 2001 2000
- ----------- ---- ----
Assets
Cash and due from banks $ 47,104 $ 33,505
Federal funds sold 45,010 39,000
---------------------
Total cash and cash equivalents 92,114 72,505
Securities held for sale (at market) 280,822 178,722
Securities held for investment
(market values:
2001 - $26,230 and 2000 - $26,078) 25,530 25,942
---------------------
Total Securities 306,352 204,664
Loans available for sale 19,135 2,030
Loans 785,027 844,546
Less: Allowance for loan losses 7,034 7,218
---------------------
Net Loans 777,993 837,328
Bank premises and equipment 15,357 16,633
Other real estate owned 119 346
Core deposit intangibles 402 654
Goodwill 2,448 2,682
Other assets 12,008 14,531
---------------------
Total Assets $1,225,964 $1,151,373
=====================
Liabilities and Shareholders' Equity
Liabilities
Demand deposits (noninterest bearing) $ 172,128 $ 159,775
Savings deposits 444,229 380,791
Other time deposits 305,593 324,240
Time certificates of $100,000 or more 93,204 92,283
---------------------
Total Deposits 1,015,154 957,089
Federal funds purchased and securities
sold under agreement to repurchase,
maturing within 30 days 71,704 65,020
Other borrowings 40,000 40,000
Other liabilities 5,587 5,001
---------------------
1,132,445 1,067,110
Commitments and Contingencies (Notes I and N)
Shareholders' Equity
Preferred stock, par value $1.00
per share - authorized 1,000,000
shares, none issued or outstanding. 0 0
Class A common stock, par value $.10 per share
(liquidation preference of $2.50 per share)
authorized 10,000,000 shares, issued 4,833,281
and outstanding 4,303,762 shares in 2001 and
4,824,416 and outstanding 4,357,813 shares in
2000. 483 482
Class B common stock, par value $.10 per share
authorized 810,000 shares, issued and
outstanding 349,845 in 2001 and 358,710
shares in 2000. 35 36
Additional paid-in capital 27,924 27,831
Retained earnings 80,886 72,562
Less: Treasury Stock (529,519 shares
in 2000), at cost. (17,239) (14,470)
----------------------
92,089 86,441
Accumulated other comprehensive income, net 1,430 (2,178)
----------------------
Total Shareholders' Equity 93,519 84,263
----------------------
Total Liabilities and
Shareholders' Equity $1,225,964 $1,151,373
======================
- ----------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
(In thousands))
Year Ended December 31 2001 2000 1999
- -------------------------------------------------------------------------
Cash flows from operating activities
Interest received $ 82,120 $ 78,619 $ 73,526
Fees and commissions received 15,450 13,384 12,570
Interest paid (35,645) (37,341) (30,527)
Cash paid to suppliers and
employees (34,468) (34,261) (33,405)
Income taxes paid (9,761) (7,566) (7,315)
---------------------------------
Net cash provided by operating
activities 17,696 12,835 14,849
Cash flows from investing activities
Maturities of securities held
for sale 97,156 19,699 85,078
Maturities of securities held
for investment 3,660 4,848 4,770
Proceeds from sale of
securities held for sale 154,018 10,203 60,106
Purchase of securities held for
sale (334,597) (7,559) (110,258)
Purchase of securities held for
investment (15,798) (13,357) 0
Net new loans and principal
repayments 42,142 (68,471) (74,498)
Proceeds from sale of other
real estate owned 305 722 676
Additions to bank
premises and equipment (757) (2,054) (804)
Net change in other assets (485) (627) 44
--------------------------------
Net cash (used in) investing
activities (54,356) (56,596) (34,886)
Cash flows from financing activities
Net increase in deposits 58,068 51,146 744
Net increase(decrease) in federal
funds purchased and repurchase
agreements 6,684 (1,944) (10,794)
Net increase in other borrowings 0 15,030 0
Exercise of stock options 1,281 236 1,529
Treasury stock acquired (4,457) (3,119) (4,243)
Dividends paid (5,307) (5,025) (4,695)
--------------------------------
Net cash(used in) provided by
financing activities 56,269 56,324 (17,459)
--------------------------------
Net increase (decrease) in cash
and cash equivalents 19,609 12,563 (37,496)
Cash and cash equivalents at
beginning of year 72,505 59,942 97,438
--------------------------------
Cash and cash equivalents at end
of year $92,114 $72,505 $59,942
================================
- ----------------------------------------------------------------------------
See Note P for supplemental disclosures. See notes to consolidated financial
statements.
Consolidated Statements of Shareholders' Equity
- -----------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
Common Stock
----------------------------
Additional
Class A Class B Paid-in
(In thousands) Stock Stock Capital
- -------------------------------------------------------------------
Balance at December 31, 1998 $481 $37 $27,439
Comprehensive Income:
Net Income
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B
common stock for
Class A common stock 1 (1)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards 346
-------------------------------
Balance at December 31, 1999 482 36 27,785
Comprehensive Income:
Net Income
Unrealized gains on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B
common stock for
Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards 46
------------------------------
Balance at December 31, 2000 482 36 27,831
Comprehensive Income:
Net Income
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared
Exchange of Class B
common stock for
Class A common stock 1 (1)
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards 93
------------------------------
Balance at December 31, 2001 $483 $35 $27,924
==============================
- ----------
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity (con't)
(In thousands) Retained Treasury
Earnings Stock
- ---------------------------------------------------------------
Balance at December 31, 1998 $59,162 $(8,806)
Comprehensive Income:
Net Income 11,784
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (4,695)
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired (5,076)
Common stock issued from Treasury:
For employee benefit plans 125
For stock options and awards (653) 2,117
-----------------------
Balance at December 31, 1999 65,598 (11,640)
Comprehensive Income:
Net Income 12,088
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (5,025)
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired (3,242)
Common stock issued from Treasury:
For employee benefit plans 72
For stock options and awards (99) 340
-----------------------
Balance at December 31, 2000 72,562 (14,470)
Comprehensive Income:
Net Income 24,130
Unrealized losses on securities
Comprehensive Income
Cash Dividends Declared (5,307)
Exchange of Class B common
stock for Class A common stock
Treasury stock acquired (4,523)
Common stock issued from Treasury:
For employee benefit plans 64
For stock options and awards (499) 1,690
-----------------------
Balance at December 31, 2001 $80,886 $(17,239)
- ----------
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity (con't)
- -------------------------------------------------------
Securities
Valuation
(In thousands) Equity Comprehensive
(Allowance) Income
- -------------------------------------------------------------------
Balance at December 31, 1998 $129
Comprehensive Income:
Net Income $11,784
Unrealized losses on securities (5,279) (5,279)
-------
Comprehensive Income 6,505
Cash Dividends Declared
Exchange of Class B common stock
for Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards
-------
Balance at December 31, 1999 (5,150)
Comprehensive Income:
Net Income 12,088
Unrealized gains on securities 2,972 2,972
------
Comprehensive Income 15,060
Cash Dividends Declared
Exchange of Class B common stock
for Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards
-------
Balance at December 31, 2000 (2,178)
Comprehensive Income:
Net Income 14,130
Unrealized gains on securities 3,608 3,608
Comprehensive Income 17,738
------
Cash Dividends Declared
Exchange of Class B common stock
for Class A common stock
Treasury stock acquired
Common stock issued from Treasury:
For employee benefit plans
For stock options and awards
------
Balance at December 31, 2001 $1,430
======
- ----------------------------------------------
See notes to consolidated financial statements.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Seacoast Banking Corporation of Florida and Subsidiaries
Note A
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
Nature of Operations: The company is a single segment bank holding company whose
operations and locations are more fully described on page 13 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 or losses reflected as a
component of Shareholders' Equity net of tax. Debt securities that the Company
has the ability and intent to hold to maturity are carried at amortized cost.
Interest income on securities, including amortization of premiums and accretion
of discounts is recognized using the interest method.
The Company generally anticipates prepayments of principal in the calculation of
the effective yield for collateralized mortgage obligations and mortgage backed
securities. The adjusted cost of each specific security sold is used to compute
gains or losses on the sale of securities.
Other Real Estate Owned: Other real estate owned consists of real estate
acquired in lieu of unpaid loan balances. These assets are carried at an amount
equal to the loan balance prior to foreclosure plus costs incurred for
improvements to the property, but no more than the estimated fair value of the
property.
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation is computed
principally by the straight line method, over the estimated useful lives as
follows: building - 25-40 years, furniture and equipment - 3-12 years.
Business Combinations: 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. Upon adoption of Statements of Financial Accounting Standards (SFAS)No.
142, "Goodwill and Other Intangible Assets", on January 1, 2002, goodwill will
not be amortized, but tested for impairment and the amount of loss recognized
(if any). The effect of the adoption of SFAS 142 is not expected to be material.
Mortgage Servicing Rights: The Company acquires mortgage servicing rights
through the origination of mortgage loans, and the Company may sell or
securitize those loans with servicing rights retained. Under Statement of
Financial Accounting Standards No. 140, the Company allocates the total cost of
the mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values.
The Company assesses its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. The portfolio is stratified by two
predominant risk characteristics: loan type and fixed versus variable interest
rate. Impairment, if any, is recognized through a valuation allowance for each
impaired stratum. Mortgage servicing rights are amortized in proportion to, and
over the period of, the estimated net future servicing income.
Revenue Recognition: Interest on loans is accrued based upon the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, interest credited to income in the
current year is reversed and interest accrued in the prior year is charged to
the allowance for loan losses.
Management may elect to continue the accrual of interest when the estimated net
realizable value of collateral is sufficient to cover the principal balance and
accrued interest.
Provision for Loan Losses: The provision for loan losses is management's
judgment of the amount necessary to increase the allowance for loan losses to a
level sufficient to cover losses in the collection of loans.
Net Income Per Share: Net income per share is based upon the weighted average
number of shares of both Class A and Class B common stock (Basic) and
equivalents (Diluted) outstanding during the respective years.
Cash Flow Information: For the purposes of the consolidated statements of cash
flows, the Company considers cash and due from banks and federal funds sold as
cash and cash equivalents.
New Accounting Standards: In August 2001, the Financial Accounting Standards
Board (FASB) issued SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which addresses the accounting for a segment of a business
accounted for as a discontinued operation. SFAS 144 supercedes SFAS 121 which
was issued in March 1995. The enhanced disclosures are effective for fiscal
years beginning after December 15, 2001. The effect of SFAS 144 on the Company
is not expected to be material.
----------
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, 2001 was approximately $1,800,000.
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, 2001, the
maximum amount available for transfer from the subsidiary bank to the Company in
the form of loans approximated 20 percent of consolidated net assets.
The approval of the Comptroller of the Currency is required if the total of all
dividends declared by a national bank in any calendar year exceeds the bank's
profits, as defined, for that year combined with its retained net profits for
the preceding two calendar years. Under this restriction the Company's
subsidiary bank can distribute as dividends to the Company in 2002, without
prior approval of the Comptroller of the Currency, approximately $12,500,000.
----------
NOTE C
SECURITIES
The amortized cost and market value of securities at December 31, 2001, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment penalties.
Held for
Investment Held for Sale
-----------------------------------
Amortized Market Amortized Market
(Dollars in thousands) Cost Value Cost Value
- ---------------------------------------------------------------
Due in less than one year $ 485 $ 492 $ 1,004 $ 1,030
Due after one year
through five years 2,587 2,662 1,495 1,531
Due after five years
through ten years 1,665 1,717 0 0
Due after ten years 0 0 0 0
-------------------------------------
4,737 4,871 2,499 2,561
Mortgage backed
securities 20,793 21,359 268,197 270,495
No contractual maturity 0 0 7,785 7,766
-------------------------------------
$25,530 $26,230 $278,481 $280,822
=====================================
Proceeds from sales of securities during 2001 were $154,018,000 with gross gains
of $1,053,000 and gross losses of $138,000. During 2000, proceeds from sales of
securities were $10,203,000 with gross gains of $10,000 and gross losses of
$22,000. During 1999, proceeds from sales of securities were $60,106,000 with
gross gains of $332,000 and gross losses of $66,000.
Securities with a carrying value of $112,163,000 at December 31, 2001, were
pledged to secure United States Treasury deposits, other public deposits and
trust deposits.
At December 2001
------------------------------------------
Gross Gross Gross
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------
SECURITIES HELD FOR SALE
U.S. Treasury and U.S.
Government agencies $ 2,499 $ 62 $ 0 $ 2,561
Mortgage Backed
Securities: 268,197 2,779 (481) 270,495
Mutual funds 300 0 (19) 281
Other securities 7,485 0 7,485
-----------------------------------------
$278,481 $2,841 $ (500) $280,822
=========================================
SECURITIES HELD FOR
INVESTMENT
Mortgage Backed Securities $ 20,793 $ 576 $ (10) $ 21,359
Obligations of States and
Political Subdivisions 4,737 134 0 4,871
-----------------------------------------
$ 25,530 $ 710 $ (10) $ 26,230
=========================================
At December 2000
------------------------------------------
Gross Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------
SECURITIES HELD FOR SALE
U.S. Treasury and U.S.
Government agencies $ 20,996 $ 0 $ (228) $ 20,768
Mortgage Backed Securities 129,619 18 (3,017) 126,620
Mutual Funds 23,881 0 (219) 23,662
Other Securities 7,734 0 (62) 7,672
-----------------------------------------
$182,230 $ 18 $(3,526) $178,722
=========================================
SECURITIES HELD FOR
INVESTMENT
Mortgage Backed Securities $ 19,528 $ 113 $ (79) $ 19,562
Obligations of States and
Political Subdivisions 6,414 102 0 6,516
Other Securities 0 0 0 0
-----------------------------------------
$ 25,942 $ 215 $ (79) $ 26,078
=========================================
NOTE D
LOANS
An analysis of loans at December 31 is summarized as follows:
(Dollars in thousands) 2001 2000
- ----------------------- -------- --------
Real estate construction $ 70,630 $ 42,633
Real estate mortgage 574,585 671,424
Commercial and financial 36,617 39,465
Installment loans to
individuals 102,760 90,744
Other 435 280
-------- --------
$785,027 $844,546
======== ========
One of the sources of the Company's business is loans to directors, officers and
other members of management. These loans are made on the same terms as all other
loans and do not involve more than normal risk of collectability. The aggregate
dollar amount of these loans was approximately $4,564,000 and $5,042,000 at
December 31, 2001 and 2000, respectively. During 2001, $858,000 of new loans
were made and repayments totaled $1,336,000.
See Page 21 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
Certain impaired loans are 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's recorded investment in impaired loans and related valuation
allowance are as follows:
2001 2000
-------------------- --------------------
Recorded Valuation Recorded Valuation
(Dollars in thousands) Investment Allowance Investment Allowance
- ------------------------- -------------------- --------------------
Impaired loans:
Valuation allowance required $ 0 $ 0 $10 $10
No valuation allowance required 0 0 0 0
--- --- --- ---
TOTAL $ 0 $ 0 $10 $10
=== === === ===
The valuation allowance is included in the allowance for loan losses. The
average recorded investment in impaired loans for the years ended December 31,
2001 and 2000 were $1,000 and $23,000 respectively.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which time
payments received are recorded as reductions to principal. The Company
recognized interest income on impaired loans of $4,000 and $6,000 for the years
ended December 31, 2001 and 2000, respectively.
Transactions in the allowance for loan losses for the two years ended December
31, are summarized as follows:
(In thousands) 2001 2000
- ------------------------- ---- ----
Balance, beginning of year $7,218 $6,870
Provision charged to operating expense 0 600
Charge offs (455) (643)
Recoveries 271 391
------ ------
Balance, end of year $7,034 $7,218
====== ======
----------
NOTE F
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
Accumulated
Depreciation Net
& Carrying
(In thousands) Cost Amortization Value
- -------------------------------------------------------------------
December 31, 2001
Premises (including land of
$2,967) $21,091 $ 8,792 $12,299
Furniture and equipment 12,519 9,461 3,058
------- ------- -------
$33,610 $18,253 $15,357
======= ======= =======
December 31, 2000
Premises (including land of $20,985 $ 8,107 $12,878
$2,967)
Furniture and equipment 13,545 9,790 3,755
------- ------- -------
$34,530 $17,897 $16,633
======= ======= =======
----------
NOTE G
BORROWINGS
All of the Company's short-term borrowings were comprised of federal funds
purchased and securities sold under agreements to repurchase with maturities
primarily from overnight to seven days:
(In thousands) 2001 2000 1999
- ------------------------- ---- ---- ----
Maximum amount outstanding
at any month end $71,704 $68,352 $72,172
Average interest rate
outstanding at end of year 1.19% 5.37% 4.24%
Average amount outstanding $51,603 $38,735 $38,438
Weighted average interest rate 2.86% 5.29% 4.22%
- ----------------------------------------------------------------
On July 31, 1998, the Company acquired $24,970,000 in other borrowings,
$15,000,000 from the Federal Home Loan Bank (FHLB), principal payable on
November 12, 2009 with interest payable quarterly at 6.10% and $9,970,000 from
Donaldson, Lufkin & Jenrette (DLJ), principal payable on July 31, 2003, with
interest payable quarterly at 5.40%. The DLJ borrowing was called on August 31,
2000. On March 9, 2000 the Company acquired $25,000,000 in additional borrowings
from FHLB, principal payable on March 9, 2002 with interest payable quarterly at
6.99%; the borrowing was restructured to a 3 year term on December 1, 2000 at
6.55%. The FHLB $15,000,000 debt is subject to early termination on November 12,
2004 in accordance with the terms of the agreement.
The FHLB debt is secured by residential mortgage loans totaling $40,000,000.
The Company's subsidiary bank has unused lines of credit of $140,500,000 at
December 31, 2001. The parent, Seacoast Banking Corporation of Florida, has an
unused revolving line of credit totaling $5,000,000 which, if drawn upon, may be
used for general corporate purposes, including but not limited to the capital
needs of the Company and its subsidiaries and the repurchase of Common Stock.
----------
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 $1,282,000 in 2001, $1,034,000 in 2000, and $1,355,000 in 1999.
The Company's stock option and stock appreciation rights plans were approved by
the Company's shareholders on April 25, 1991, April 25, 1996 and April 20, 2000.
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 and
pursuant to the 2000 plan shall not exceed 400,000 shares. The Company has
granted options on 250,000 shares and 286,000 shares for the 1991 and 1996
plans, respectively, through December 31, 2000; no options have been granted
under the 2000 plan. Under the plans, the option exercise price equals the Class
A common stock's market price on the date of grant. All options have a vesting
period of four years and a contractual life of ten years.
The following table presents a summary of stock option activity for 1999, 2000
and 2001:
Weighted Weighted
Average Average
Number Fair Option Price Exercise
of Shares Value Per Share Price
------------------------------------------------
Options
outstanding,
January 1, 1999 378,000 $11.00 - 29.00 $23.14
Exercised (68,000) 11.75 - 21.75 16.99
---------------------------------------------
Options
outstanding,
December 31, 1999 310,000 11.75 - 29.00 24.51
Exercised (11,000) 11.75 - 19.00 17.42
Granted 7,000 6.98 24.63 - 27.13 25.70
Cancelled (5,000) 29.00 29.00
---------------------------------------------
Options
outstanding,
December 31, 2000 301,000 11.75 - 29.00 24.72
Exercised (54,000) 17.50 - 29.00 21.95
Canceled (4,000) 25.50 - 29.00 27.78
---------------------------------------------
Options
outstanding,
December 31, 2001 243,000 11.75 - 29.00 25.26
=============================================
Options
exercisable,
December 31, 2001 236,000 25.24
=====================================================================
The following table summarizes information about stock options outstanding at
December 31, 2001:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------
Weighted
Average
Number of Remaining Weighted Number of Weighted
Range of Shares Contrac- Average Shares Average
Exercise Outstand- tual Life Exercise Exercis- Exercise
Prices ing in Years Price able Price
- ------------------------------------------------------------------------
$11.75 5,000 0.17 $11.75 5,000 $11.75
17.50 12,000 3.17 17.50 12,000 17.50
17.75 10,000 1.92 17.75 10,000 17.75
19.00 23,000 1.17 19.00 23,000 19.00
21.75 29,000 4.50 21.75 29,000 21.75
24.63 4,000 8.22 24.63 0 24.63
25.50 31,000 5.58 25.50 31,000 25.50
27.13 3,000 8.62 27.13 0 27.13
29.00 126,000 6.54 29.00 126,000 29.00
- ------------------------------------------------------------------------
243,000 5.24 25.26 236,000 25.24
========================================================================
The three stock option plans are accounted for under APB Opinion No. 25, and
therefore no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
(In
thousands,
except per
share data) 2001 2000 1999
- -------------- ---- ---- ----
Net Income:
As Reported $14,130 $12,088 $11,784
Pro Forma 13,886 11,771 11,427
Per Share:
(Diluted):
As Reported 2.96 2.51 2.40
Pro Forma 2.91 2.44 2.33
Because the statement 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 2000; risk-free interest rates of 5.65 percent
for 2000; expected dividend yield of 3.5 percent for the 2000 issue; expected
life of 7 years; expected volatility of 28.5 percent for 2000.
----------
NOTE I
LEASE COMMITMENTS
The Company is obligated under various noncancelable operating leases for
equipment, buildings and land. At December 31, 2001, future minimum lease
payments under leases with initial or remaining terms in excess of one year are
as follows:
(Dollars in thousands)
- -------------------------------
2002 $ 1,574
2003 1,552
2004 1,534
2005 1,306
2006 1,116
Thereafter 7,425
-----
$14,507
=======
Rent expense charged to operations was $1,645,000 in 2001, $1,739,000 in 2000,
and $1,471,000 in 1999. 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 $260,000 in 2001,
$255,000 in 2000 and $229,000 in 1999.
----------
NOTE J
INCOME TAXES
The provision for income taxes including tax effects of security transaction
gains(losses)(2001 - $353,000; 2000 - ($5,000); 1999 - $115,000) are as follows:
(Dollars in thousands)
Year Ended December 31 2001 2000 1999
- ---------------------- ---- ---- ----
Current
Federal $8,034 $6,666 $6,495
State 1,335 1,149 821
Deferred
Federal (34) (121) (138)
State (9) (26) (59)
------ ------ ------
$9,326 $7,668 $7,119
====== ====== ======
Temporary differences in the recognition of revenue and expense for tax and
financial reporting purposes resulted in deferred income taxes as follows:
(Dollars in thousands)
Year ended December 31 2001 2000 1999
- ---------------------- ---- ---- ----
Depreciation $(155) $(180) $(144)
Allowance for loan losses 71 (78) (329)
Interest and fee income (428) 98 215
Other real estate owned 3 11 75
Other 466 2 (14)
------ ------ ------
TOTAL $ (43) $(147) $(197)
====== ====== ======
The difference between the total expected tax expense (computed by applying the
U.S. Federal tax rate of 35% to pretax income in 2000 and 1999 and 34.4 percent
to pretax income in 1999)and the reported income tax expense relating to income
taxes is as follows:
(Dollars in thousands)
Year Ended December 31 2001 2000 1999
- ---------------------- ---- ---- ----
Tax rate applied to income
before income taxes $8,210 $6,915 $6,503
Increase (decrease) resulting from the effects of:
Tax-exempt interest on
obligations of states and
political subdivisions (136) (182) (235)
State income taxes (464) (393) (262)
Dividend exclusion (7) (8) (8)
Amortization of
intangibles 193 201 202
Other 204 12 157
----- ----- -----
Federal tax provision 8,000 6,545 6,357
State tax provision 1,326 1,123 762
------ ------ ------
Applicable income taxes $9,326 $7,668 $7,119
====== ====== ======
The net deferred tax assets (liabilities) are comprised of the following:
(Dollars in thousands)
Year Ended December 31 2001 2000
- ---------------------- ---- ----
Allowance for loan losses $2,381 $2,452
Other real estate owned 0 3
Net unrealized securities losses 0 1,702
Other 0 87
-- --
Gross deferred tax assets 2,381 4,244
Depreciation (370) (525)
Interest and fee income (468) (896)
Net unrealized securities gains (871) 0
Other (55) (37)
---- ----
Gross deferred tax liabilities (1,764) (1,458)
Deferred tax asset valuation allowance 0 0
- -
Net deferred tax assets $617 $2,786
==== ======
The tax effects of unrealized gains (losses) included in the calculation of
comprehensive income as presented in the Statements of Shareholder's Equity for
the three years ended December 31, are as follows:
(In thousands)
2001 $2,573
2000 $1,600
1999 ($3,044)
----------
NOTE K
NONINTEREST INCOME AND EXPENSES
Details of noninterest income and expenses follow:
(Dollars in thousands)
Year Ended December 31 2001 2000 1999
- ---------------------- ---- ---- ----
Noninterest income
Service charges on deposit accounts $5,110 $4,865 $4,876
Trust fees 2,497 2,704 2,489
Other service charges and fees 2,253 1,653 1,453
Brokerage commissions and fees 1,805 2,421 2,329
Other 3,443 1,507 1,001
----- ----- -----
15,108 13,150 12,148
Securities gains(losses) 915 (12) 309
--- ---- ---
$16,023 $13,138 $12,457
======= ======= =======
Noninterest expenses
Salaries and wages $14,776 $13,077 $13,882
Employee benefits 3,866 3,177 3,798
Occupancy 3,358 3,343 3,135
Furniture and equipment 2,190 2,108 2,037
Outsourced data processing costs 4,468 4,106 3,696
Marketing 1,908 1,717 1,653
Legal and professional fees 1,230 1,177 1,572
FDIC assessments 177 184 146
Foreclosed and repossessed asset
management and dispositions 83 91 185
Amortization of intangibles 552 636 671
Other 5,452 5,261 5,208
----- ----- -----
TOTAL $38,060 $34,877 $35,983
======= ======= =======
----------
NOTE L
SHAREHOLDERS' EQUITY
The Company has reserved 100,000 Class A common shares for issuance in
connection with an employee stock purchase plan and 150,000 Class A common
shares for issuance in connection with an employee profit sharing plan. At
December 31, 2001, an aggregate of 35,236 shares and 52,422 shares,
respectively, have been issued as a result of employee participation in these
plans.
Holders of Class A common stock are entitled to one vote per share on all
matters presented to shareholders. Holders of Class B common stock are entitled
to 10 votes per share on all matters presented to shareholders. Class A and
Class B common stock vote together as a single class on all matters, except as
required by law or as provided otherwise in the Company's Articles of
Incorporation. Each share of Class B common stock is convertible into one share
of Class A common stock at any time prior to a vote of shareholders authorizing
a liquidation or dissolution of the Company.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital to average assets (as defined). Management believes, as of
December 31, 2001, that the Company meets all capital adequacy requirements to
which it is subject.
As of December 31, 2001, the most recent notification from the Company's
regulator categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth below. There are no conditions or events since that
notification that management believes have changed the institution's category.
Minimum for
Capital Adequacy
Purposes
---------------------
(Dollars in thousands) Amount Ratio Amount Ratio
- ---------------------- ------ ----- ------ -----
At December 31, 2001:
Total Capital (to risk-
weighted assets) $96,135 12.64% $60,851 >=8.00%
Tier 1 Capital (to
risk-weighted assets) 89,101 11.71 30,426 >=4.00%
Tier 1 Capital (to adjusted
average assets) 89,101 7.49 47,557 >=4.00%
At December 31, 2000:
Total Capital (to risk-
weighted assets) 90,054 12.14% $59,327 >=8.00%
Tier 1 Capital (to
risk-weighted assets) 82,836 11.17 29,664 >=4.00%
Tier 1 Capital (to adjusted
average assets) 72,836 7.44 44,511 >=4.00%
- -------(con't)------
Minimum To Be
Well Capitalized
Under Prompt
Corrective Action
Provisions
---------------------
(Dollars in thousands) Amount Ratio
At December 31, 2001
Total Capital (to risk-
weighted assets) $76,064 >=10.00%
Tier 1 Capital (to
risk-weighted assets) 45,638 >= 6.00%
Tier 1 Capital (to adjusted
average assets) 59,446 >= 5.00%
At December 31, 2000
Total Capital (to risk-
weighted assets) 74,159 >=10.00%
Tier 1 Capital (to
risk-weighted assets) 44,495 >= 6.00%
Tier 1 Capital (to adjusted
average assets) 55,639 >= 5.00%
----------
The above ratios are comparable for the Company's wholly owned banking
subsidiary.
NOTE M
SEACOAST BANKING CORPORATION OF FLORIDA
(PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
(Dollars in thousands)
December 31 2001 2000
- ---------------------- ---- ----
Assets
Cash $10 $10
Securities purchased under
agreement to resell with
subsidiary bank, maturing
within 30 days 1,039 785
Securities held for sale 0 425
Investment in subsidiaries 92,287 82,920
Other assets 340 291
--- ---
$93,676 $84,431
======= =======
Liabilities and Shareholders'
Equity
Liabilities $157 $168
Shareholders' Equity 93,519 84,263
------ ------
$93,676 $84,431
======= =======
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31 2001 2000 1999
- ---------------------- ---- ---- ----
Increase (Decrease) in Cash
Cash flows from operating
activities
Interest received $57 $106 $149
Dividends received 8,730 6,682 11,140
Income taxes received 264 186 139
Cash paid to suppliers (814) (1,162) (596)
----- ------- -----
Net cash provided by operating
activities 8,237 5,812 10,832
Cash flows from investing
activities
Decrease (increase) in securities
purchased under agreement to
resell, maturing in 30 days (254) 2.096 (2,881)
Maturities of securities held
for sell 500 0 1,000
--- - -----
Net cash provided by (used in)
investing activities 246 2,096 (1,881)
Cash flows from financing
activities
Advance (to) from subsidiary 0 0 (1,542)
Exercise of stock options 1,281 236 1,529
Treasury stock acquired (4,457) (3,119) (4,243)
Dividends paid (5,307) (5,025) (4,695)
------- ------- -------
Net cash used in financing
activities (8,483) (7,908) (8,951)
------- ------- -------
Net change in cash 0 0 0
Cash at beginning of year 10 10 10
-- -- --
Cash at end of year $10 $10 $10
=== === ===
RECONCILIATION OF NET INCOME TO
CASH PROVIDED BY OPERATING
ACTIVITIES
Net income $14,130 $12,088 $11,784
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed income
of subsidiaries (5,797) (5,768) (977)
Other net (96) (508) 25
---- ----- --
Net cash provided by operating
activities $8,237 $5,812 $10,832
======= ====== =======
STATEMENTS OF INCOME
(Dollars in thousands)
Year Ended December 31 2001 2000 1999
- ------------------------- ---- ---- ----
Income
Dividends
Subsidiary $8,700 $6,650 $11,100
Other 27 32 32
Interest 70 106 124
--- --- ---
8,797 6,788 11,256
Expenses 706 686 635
--- --- ---
Income before income tax credit
and equity in undistributed
income of subsidiaries 8,091 6,102 10,621
Income tax credit 242 218 186
--- --- ---
Income before equity in
undistributed income of
subsidiaries 8,333 6,320 10,807
Equity in undistributed income of
subsidiaries 5,797 5,768 977
------- ------- -------
Net income $14,130 $12,088 $11,784
======= ======= =======
----------
NOTE N
CONTINGENT LIABILITIES AND COMMITMENTS WITH OFF BALANCE SHEET RISK
The Company and its subsidiary bank, because of the nature of their business,
are at all times subject to numerous legal actions, threatened or filed.
Management, based upon advice of legal counsel, does not expect that the final
outcome of threatened or filed suits will have a materially adverse effect on
its results of operations or financial condition.
The Company's subsidiary bank is a party to financial instruments with off
balance sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend
credit and standby letters of credit.
The subsidiary bank's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contract or notional amount of
those instruments. The subsidiary bank uses the same credit policies in making
commitments and standby letters of credit as it does for on balance sheet
instruments.
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 credit-worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, equipment, and commercial and
residential real estate. Of the $114,865,000 in outstanding commitments at
December 31, 2001, $47,450,000 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, 2001 and 2000 amounted to
$3,893,000 and $6,193,000, respectively.
Contract or
Notional Amount
(Dollars in thousands)
Year Ended December 31 2001 2000
- ---------------------- ---- ----
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $114,865 $88,513
Standby letters of credit and
financial guarantees written:
Secured 837 1,256
Unsecured 515 558
----------
NOTE O
MORTGAGE SERVICING RIGHTS, NET
The fair value of capitalized mortgage servicing rights was estimated using a
discounted cash flow model. Prepayment speed projections and market assumptions,
regarding discount rate, servicing cost, escrow earnings credits, payment float,
and advance cost interest rates were determined from guidelines provided by a
third-party mortgage servicing rights broker.
The following is an analysis of the mortgage servicing rights, net at December
31:
(Dollars in Thousands) 2001 2000
- ---------------------- ---- ----
Unamortized Balance at
beginning of year $1,296 $1,529
Origination of mortgage
servicing rights 222 0
Amortization (310) (233)
------ ------
1,208 1,296
Less: Reserves (158) (126)
------ ------
TOTAL $1,050 $1,170
====== ======
(Dollars in Thousands)
Year Ended December 31 2001 2000
- ---------------------- ---- ----
Unpaid principal
balance of serviced
loans for which
mortgage servicing
rights are
capitalized $115,921 $123,391
======== ========
Unpaid principal
balance of serviced
loans for which
there are no
servicing rights
capitalized. $20,009 $26,773
======= =======
----------
NOTE P
SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities for
three years ended:
(Dollars in thousands)
Year Ended December 31 2001 2000 1999
- ------------------------------------ ------------------------------
Net Income $14,130 $12,088 $11,784
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation and amortization 3,565 2,559 2,925
Provision for loan losses 0 600 660
Credit for deferred taxes (43) (147) (197)
Gain (loss) on sale of securities (915) 12 (309)
Gain on sale of loans
Loss on sale and write
down of foreclosed assets 10 16 77
Loss on disposition of
equipment 7 14 25
Change in interest receivable 580 (836) 128
Change in interest payable (243) 294 (65)
Change in prepaid expenses 172 (677) (1)
Change in accrued taxes (382) 251 (25)
Change in other liabilities 815 (1,339) (153)
--- ------- -----
TOTAL ADJUSTMENTS 3,566 747 3,065
----- ----- -----
Net cash provided by operating
activities $17,696 $12,835 $14,849
======= ======= =======
Supplemental disclosure of non-cash investing activities:
Market value adjustment to
securities $5,849 $4,564 $(8,297)
Transfers from loans to other real
estate owned 88 745 804
----------
NOTE Q
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value at December 31:
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, 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, 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.
Deposit Liabilities
The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated using the rates currently offered
for deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
present credit-worthiness of the counterparties.
2001 2000
----------------------------------------
(Dollars in thousands) Carrying Fair Carrying Fair
Year Ended December 31 Amount Value Amount Value
- ---------------------- ------ ----- ------ -----
Financial Assets
Cash and cash
equivalents $92,114 $92,114 $72,505 $72,505
Securities 306,352 307,052 204,664 204,800
Loans, net 777,993 794,018 837,328 837,915
Financial Liabilities
Deposits 1,015,154 1,019,503 957,089 959,056
Borrowings 111,704 114,039 105,020 105,894
Contingent Liabilities
Commitments to extend
credit 0 1,035 0 787
Standby letters of
credit 0 14 0 19
----------
NOTE R
EARNINGS PER SHARE
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share were determined by including assumptions of
stock option conversions.
Year ended December 31
(Dollars in thousands except Net Per-share
per share data) Income Shares Amount
- ---------------------- ------ ------ ------
2001
Basic Earnings Per Share
Income available to common
shareholders $14,130 4,703,414 $3.00
=====
Options issued to executives
(See Note H) 71,429
------- ------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $14,130 4,774,843 $2.96
======= ========= =====
2000
Basic Earnings Per Share
Income available to common
shareholders $12,088 4,781,215 $2.53
=====
Options issued to executives
(See Note H) 33,377
------- ------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $12,088 4,814,592 $2.51
======= ========= =====
1999
Basic Earnings Per Share
Income available to common
shareholders $11,784 4,844,943 $2.43
=====
Options issued executives
(See Note H) 64,211
------- ------
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $11,784 4,909,154 $2.40
======= ========= =====