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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended Commission file
JUNE 30, 2002 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
(Exact name of registrant as specified in its charter)
Florida 59-2260678
- --------------------------------- -----------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart FL 34994
- ---------------------------------------- ---------------
(Address of principal executive offices) (Zip code)
(772) 287-4000
- -------------------------------
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.10
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of June 30, 2002:
Common Stock, $.10 Par Value - 13,979,703 shares
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
June 30, 2002, December 31, 2001 and
June 30, 2001 3 - 4
Condensed consolidated statements of income -
Three months and six months ended June 30, 2002
and 2001 5
Condensed consolidated statements of cash flows -
Six months ended June 30, 2002 and 2001 6 - 7
Notes to condensed consolidated financial
statements 8 - 10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 24
Part II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 25 - 27
Item 6 Exhibits and Reports on Form 8-K 28
SIGNATURES 29
Part I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
June 30, December 31,
(Dollars in thousands) 2002 2001
- ----------------------------------------------------------------------
ASSETS
Cash and due from banks $40,634 $47,104
Federal funds sold 0 45,010
Securities:
Held for sale (at fair value) 357,218 280,822
Held for investment (fair values)
$24,443 at June 30, 2002,
$26,230 at December 31, 2001
& $17,199 at June 30, 2001) 23,809 25,530
---------------------------
TOTAL SECURITIES 381,027 306,352
Loans available for sale 13,439 19,135
Loans 738,001 785,027
Less: Allowance for loan losses (6,902) (7,034)
---------------------------
NET LOANS 731,099 777,993
Bank premises and equipment, net 15,111 15,357
Other assets 14,627 15,013
---------------------------
$1,195,937 $1,225,964
===========================
LIABILITIES
Deposits $1,013,972 $1,015,154
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 38,498 71,704
Other borrowings 40,000 40,000
Other liabilities 4,960 5,587
---------------------------
1,097,430 1,132,445
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
June 30, December 31,
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock
par value $1.00 per share,
authoriaxed 4,000,000 shares,
none issued or outstanding 0 0
Common stock
par value $.10 per share,
authorized 22,000,000 shares,
issued 15,549,378 and outstanding
13,979,703 shares at June 30, 2002,
issued 15,549,378 and outstanding
13,960,821 shares at December 31, 2001 1,554 1,554
Additional paid-in capital 26,888 26,888
Retained earnings 85,406 80,886
Less: Treasury stock
1,569,675 shares at June 30, 2002,
1,588,557 shares at December 31, 2001 (17,012) (17,239)
---------------------------
96,836 92,089
Other comprehensive income 1,671 1,430
---------------------------
TOTAL SHAREHOLDERS'
EQUITY 98,507 93,519
---------------------------
$1,195,937 $1,225,964
===========================
- ---------------------------------------------------------------------
Note: The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date. See notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
(Dollars in thousands,
except per share data) 2002 2001 2002 2001
- --------------------------------------------------------------------------------
Interest and dividends on
securities $3,864 $3,674 $7,172 $6,880
Interest and fees on loans 14,132 16,715 28,900 33,578
Interest on federal funds sold 138 332 423 939
-----------------------------------------------
Total Interest Income 18,134 20,721 36,495 41,397
Interest on deposits 1,280 2,183 2,626 4,532
Interest on time certificates 3,854 6,147 8,242 12,370
Interest on borrowed money 792 1,043 1,642 2,249
-----------------------------------------------
Total Interest Expense 5,926 9,373 12,510 19,151
-----------------------------------------------
NET INTEREST INCOME 12,208 11,348 23,985 22,246
Provision for loan losses 0 0 0 0
-----------------------------------------------
Net Interest Income After
Provision for Loan Losses 12,208 11,348 23,985 22,246
Noninterest income
Securities gains 398 422 464 567
Other income 4,033 3,849 8,016 7,389
-----------------------------------------------
Total Noninterest Income 4,431 4,271 8,480 7,956
Total Noninterest Expenses 10,002 9,522 19,770 18,701
-----------------------------------------------
INCOME BEFORE INCOME TAXES 6,637 6,097 12,695 11,501
Provision for income taxes 2,588 2,395 4,960 4,521
-----------------------------------------------
NET INCOME $4,049 $3,702 $7,735 $6,980
===============================================
- --------------------------------------------------------------------------------
PER SHARE COMMON STOCK:
Net income basic $ 0.29 $ 0.26 $ 0.55 $ 0.49
Net income diluted 0.28 0.26 0.54 0.49
Cash Dividends Declared 0.10 0.09 0.20 0.19
AVERAGE SHARES OUTSTANDING
Basic 13,993,935 14,131,254 14,000,577 14,159,131
Diluted 14,322,057 14,302,200 14,313,537 14,300,580
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Six Months Ended
June 30,
- --------------------------------------------------------------------------------
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------
Cash (used in) provided by
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 38,754 $ 41,818
Fees and commissions received 8,193 7,562
Interest paid (12,763) (19,286)
Cash paid to suppliers and employees (18,786) (16,303)
Income taxes paid (5,162) (4,482)
-----------------------------
Net cash provided by operating activities 10,236 9,309
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities held
for sale 137,227 35,319
Proceeds from maturity of securities held
for investment 1,700 2,545
Proceeds from sale of securities held for sale 37,288 135,032
Purchase of securities held for sale (252,273) (166,105)
Purchase of securities held for investment 0 (5,902)
Net new loans and principal repayments 52,517 10,206
Proceeds from the sale of other real estate owned 75 236
Additions to bank premises and equipment (692) (505)
Net change in other assets (190) 847
-----------------------------
Net cash provided by (used in) investing
activities (24,348) 11,673
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (1,174) 14,096
Net decrease in federal funds purchased and
repurchase agreements (33,206) (17,099)
Exercise of stock options 469 694
Treasury stock acquired (669) (1,083)
Dividends paid (2,788) (2,619)
-----------------------------
Net cash used in financing activities (37,368) (6,011)
-----------------------------
Net increase (decrease) in cash and cash
equivalents (51,480) 14,971
Cash and cash equivalents at beginning of period 92,114 72,505
-----------------------------
Cash and cash equivalents at end of period $ 40,634 $ 87,476
=============================
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Six Months Ended
June 30,
- --------------------------------------------------------------------------------
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------
Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $ 7,735 $ 6,980
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 3,486 1,438
Securities gains (464) (567)
Loss (gain) on sale and write down of foreclosed
assets (2) 17
Gain on disposition of fixed assets (3) (1)
Change in interest receivable 17 483
Change in interest payable (253) (135)
Change in prepaid expenses 302 217
Change in accrued taxes 7 400
Change in other liabilities (589) 477
----------------------------
Total adjustments 2,501 2,329
----------------------------
Net cash provided by operating activities $10,236 $ 9,309
============================
- --------------------------------------------------------------------------------
Supplemental disclosure of noncash investing
activities:
Transfers from loans to other real estate owned $ 73 $ 99
Change in net unrealized securities gains 394 4,654
Transfers from securities held for investment to
securities held for sale 0 12,510
Transfers from loans to securities held for sale 6,075 19,595
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six-month period
ended June 30, 2002, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2001.
NOTE B - COMPREHENSIVE INCOME
Under FASB Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," the Company is required to report a measure of all
changes in equity, not only reflecting net income but certain other changes as
well. At June 30, 2002 and 2001, comprehensive income was as follows:
Three Months Ended June 30,
(Dollars in thousands) 2002 2001
--------------------------------
Net income $ 4,049 $ 3,702
Net unrealized gains-securities (net of tax) 1,886 145
--------------------------------
Comprehensive income $ 5,935 $ 3,847
================================
Six Months Ended June 30,
(Dollars in thousands) 2002 2001
--------------------------------
Net income $ 7,735 $ 6,980
Net unrealized gains-securities (net of tax) 241 2,876
--------------------------------
Comprehensive income $ 7,976 $ 9,856
================================
- --------------------------------------------------------------------------------
NOTE C - DERIVATIVE INSTRUMENTS
Derivative financial instruments, such as interest rate swaps, options, caps,
floors, futures and forward contracts have not been components of the Company's
past risk management profile. The Company monitors its sensitivity to changes in
interest rates and may use derivative instruments to limit volatility of net
interest income. Derivative instruments had no effect on net interest income in
first or second quarter 2002 or the prior year.
With the adoption of Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," on January
1, 2001, the Company reclassified during the first quarter of 2001 $12.5 million
of securities as available for sale which were previously classified as held to
maturity in accordance with SFAS No. 115.
NOTE D - EARNINGS PER SHARE DATA
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------------
(Dollars in thousands, 2002 2001 2002 2001
except per share data) -----------------------------------------------
Basic:
Net Income $4,049 $3,702 $7,735 $6,980
Average shares outstanding 13,993,935 14,131,254 14,000,577 14,159,131
Basic EPS $ 0.29 $ 0.26 $ 0.55 $ 0.49
Diluted:
Net Income $4,049 $3,702 $7,735 $6,980
Average shares outstanding 13,993,935 14,131,254 14,000,577 14,159,131
Net effect of dilutive stock
options - based on treasury
stock methoid 328,122 170,946 312,960 141,449
-----------------------------------------------
Total 14,322,057 14,302,200 14,313,537 14,300,580
-----------------------------------------------
Diluted EPS $ 0.28 $ 0.26 $ 0.54 $ 0.49
NOTE E - ACCOUNTING STANDARDS
With the adoption of Statements of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," on January 1, 2002, goodwill is no
longer amortized, but tested for impairment and the amount of loss recognized
(if any). The effect of the adoption of SFAS 142 did not have any effect on the
Company's financial position. The curtailment of amortization of goodwill
increased net income by $46,000 or $0.003 diluted earnings per share for the
three-month period ended June 30, 2002 and $92,000 or $0.006 diluted earnings
per share for the six-month period ending June 30, 2002.
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
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 issued in March 1995. The
enhanced disclosures are effective for fiscal years beginning after December 15,
2001. The adoption of SFAS 144 on January 1, 2002 on the Company was not
material.
In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections"
(Statement 145). Statement 145 rescinds Statement 4, which required all gains
and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. In
addition, Statement 145 amends Statement 13 on leasing to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
Provisions of Statement 145 related to the rescission of Statement 4 are
effective for financial statements issued by Seacoast after January 1, 2003. The
provisions of the statement related to sale-leaseback transactions are effective
for any transactions occurring after May 15, 2002. All other provisions of the
statement were effective as of the end of the second quarter of 2002. The
adoption of the provisions of Statement 145 did not have a material impact on
Seacoast's financial condition or results of operations nor does Seacoast expect
the future adoption of the other provisions of Statement 145 to have a material
impact on Seacoast's financial results.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
SECOND QUARTER 2002
The following discussion and analysis is designed to provide a better
understanding of the significant factors related to the Company's results of
operations and financial condition. Such discussion and analysis should be read
in conjunction with the Company's Condensed Consolidated Financial Statements
and the notes attached thereto.
EARNINGS SUMMARY
Net income for the second quarter of 2002 totaled $4,049,000 or $0.28 per share
diluted, compared to $3,686,000 or $0.26 per share diluted recorded in the first
quarter of 2002 and was higher than the $3,702,000 or $0.26 per share diluted
reported in the second quarter of 2001. Profits realized from investment
securities sold added $244,000 or $0.019 per share diluted to second quarter
2002's results. In comparison, 2001's results were affected by profits realized
from investment securities of $259,000 or $0.018 per share diluted in the second
quarter. Note that earnings per share results for the current and prior periods
reflect the retro active application of a three-for-one stock split on Common
Stock effective July 15, 2002 for shareholders of record on July 1, 2002.
Return on average assets was 1.33 percent and return on average shareholders'
equity was 16.76 percent for the second quarter of 2002, compared to first
quarter 2002's performance of 1.18 percent and 15.45 percent, respectively, and
the prior year's second quarter results of 1.28 percent and 16.52 percent,
respectively.
NET INTEREST INCOME
Net interest income (on a fully taxable equivalent basis) for the second quarter
of 2002 totaled $12,260,000, $444,000 or 3.8 percent greater than for the first
quarter of 2002 and $857,000 or 7.5 percent higher than for the second quarter
of 2001. For the six-month period ended June 30, 2002, net interest income (on a
tax equivalent basis) increased $1,714,000 or 7.7 percent year over year to
$24,076,000.
Net interest margin on a tax equivalent basis increased 18 basis points to 4.23
percent for the second quarter of 2002 from 4.05 percent for the first quarter
of 2002. Since December 2000, the Federal Reserve has been aggressive in
reducing short-term interest rates. A 50 basis point reduction in December 2000
and subsequent reductions totaling 400 basis points in 2001 were imposed (125
basis points occurring in the fourth quarter of 2001). The cost of
interest-bearing liabilities in the second quarter of 2002 decreased 25 basis
points to 2.52 percent from first quarter, with rates for NOW, savings, money
market accounts, certificates of deposit (CDs), and short term borrowings
(entirely composed of sweep repurchase agreements) decreasing 17, 15, 7, 43 and
4 basis points, respectively. The average balance for NOW, savings and money
market balances (aggregated) increased $14,874,000 or 3.3 percent from first
quarter 2002. Average noninterest bearing deposits increased $9,251,000 or 5.5
percent, and average certificates of deposit declined $14,934,000 or 3.8 percent
during the second quarter 2002. Growth in low-cost / no cost funding sources
reflects the Company's longstanding strategy of building core customer
relationships and tailoring its products and services to satisfy these
customers. The uncertain economic environment contributed as well to additional
growth in core deposits as customers selected stable liquid bank products over
investments in equities. Low cost sweep repurchase agreements with customers
also decreased by $21,071,000 or 27.9 percent from first quarter 2002. The
average balance for sweep repurchase agreements typically peaks in the first
quarter, influenced by sweep repurchase agreement balances provided by local
government agencies which trend lower each year after first quarter, only to
increase in fourth quarter when tax collection begins. Local government
agencies' sweep repurchase agreement balances of $28,701,000 at March 31, 2002
decreased to $563,000 at June 30, 2002.
Lower interest rates continued to generate higher loan and investment principal
prepayments with the funds reinvested in earning assets at lower rates.
Therefore the yield on earning assets for the second quarter of 2002 declined 5
basis points to 6.28 percent from first quarter 2002. Decreases in the yield on
loans of 6 basis points to 7.53 percent and the yield on securities of 5 basis
points to 4.15 percent were partially offset by the yield on federal funds sold
increasing 2 basis points to 1.68 percent during the second quarter of 2002.
Average earning assets for the second quarter of 2002 decreased $7,140,000 or
0.6 percent when compared to 2002's first quarter. Average loan balances
declined $27,641,000 or 3.5 percent to $754,021,000, average investment
securities increased $57,000,000 or 17.9 percent to $374,862,000, and average
federal funds sold decreased $36,499,000 to $32,979,000. The decline in loans
was principally in residential real estate credits, reflecting the low interest
rate environment that provided customers the opportunity to refinance.
Consistent with our strategy to generate more fee income, and reduce intended
rate risks, these loans were sold servicing released. Activity in the Company's
securities portfolio was significant, with maturities and sales of securities of
$70.1 million and $15.7 million, respectively, and purchases totaling $101.1
million transacted during the second quarter. Securities activity reflects an
effort to manage excess funding and maintain a stable net interest margin both
now and in the future.
For the second quarter of 2001, the net interest margin was 4.12 percent. The
yield on average earning assets was 7.51 percent and rate on interest-bearing
liabilities was 4.13 percent.
Year over year the mix of earning assets and interest bearing liabilities has
changed. Loans (the highest yielding component of earning assets) as a
percentage of average earning assets totaled 64.9 percent in the second quarter
of 2002 compared to 75.2 percent a year ago, while securities increased from
22.1 percent to 32.3 percent and federal funds sold increased from 2.7 percent
to 2.8 percent. While total loans did not increase as a percentage of earning
assets, the Company successfully changed the mix of loans, with commercial and
consumer volumes increasing as a percentage of total loans and lower yielding
residential loan balances declining. Average CDs (a higher cost component of
interest-bearing liabilities) as a percentage of interest-bearing liabilities
decreased to 40.2 percent, compared to 46.9 percent in the second quarter of
2001, reflecting diminished funding requirements. Approximately $107 million in
CDs matured during the second quarter of 2002. Approximately $97 million in CDs
will mature in the third quarter of 2002, providing opportunity for these
volumes to re-price to lower rates (assuming the Federal Reserve maintains
short-term interest rates at existing levels). Lower cost interest bearing
deposits (NOW, savings and money market balances) increased to 49.8 percent of
interest bearing liabilities, versus 43.1 percent a year ago, favorably
affecting deposit mix. Borrowings (including federal funds purchased, sweep
repurchase agreements with customers of the Company's subsidiary, and other
borrowings) remained the same at 10.0 percent of interest bearing liabilities
for the second quarter of 2002 and 2001.
PROVISION FOR LOAN LOSSES
No provisioning was recorded in the first or second quarter of 2002 nor in any
quarter in 2001, reflecting the Company's exceptional credit quality, low
nonperforming assets, and slower loan growth. Net charge-offs totaled $132,000
for the first six months of 2002, compared to net charge-offs of $33,000 in
2001. Net charge-offs annualized as a percent of average loans were at 0.03
percent for the first six months of 2002, compared to 0.01 percent for the same
period in 2001 and 0.02 percent for the total year in 2001. These ratios are
better than the banking industry as a whole.
The Company's loan portfolio mix has been changing. 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 loan loss provisions should the
increased exposure result in greater inherent losses in the loan portfolio.
Management determines the provision for loan losses charged to operations by
constantly analyzing and monitoring delinquencies, nonperforming loans and the
level of outstanding balances for each loan category, as well as the amount of
net charge-offs, and by estimating losses inherent in its portfolio. While the
Company's policies and procedures used to estimate the monthly provision for
loan losses charged to operations are considered adequate by management and are
reviewed from time to time by the Office of the Comptroller of the Currency
(OCC), there exist factors beyond the control of the Company, such as general
economic conditions both locally and nationally, which make management's
judgment as to the adequacy of the provision necessarily approximate and
imprecise. (See "Nonperforming Assets" and "Allowance for Loan Losses")
NONINTEREST INCOME
Noninterest income, excluding gains and losses from securities sales, totaled
$4,033,000 for the second quarter of 2002, $184,000 or 4.8 percent higher than
for the same period last year. Noninterest income was favorably impacted by
growth in fee-based businesses. Noninterest income accounted for 24.8 percent of
operating revenues in the second quarter, compared to 25.3 percent a year ago.
Market turmoil began in late 2000 and carried through into 2001 affecting
brokerage revenues with consumers shifting from the purchase of investment
products to more conservative deposit products. Revenues rebounded somewhat in
the first quarter of 2002 with brokerage commissions and fees increasing
$143,000 or 35.8 percent year over year, while second quarter 2002's performance
was increased $14,000 or 2.5 percent to $570,000 versus a year earlier. Trust
income was lower for the second quarter 2002, declining $76,000 or 12.3 percent
to $542,000 compared to last year for the same period. Although the troubled
financial markets are not expected to improve in the near term, the Company's
previously announced formation of Seacoast Asset Management, LLC, a registered
investment advisor headed by Nola Maddox Falcone, CFA, to work with our
Financial Services Group, may lead to further noninterest income growth in the
latter part of 2002. The Company expects to expand its customer relationships
through sales of investment management and brokerage products, including
insurance.
The Company is among the leaders in the production of residential mortgage loans
in its market. Beginning in late 2001, the Company began producing loans for
third party permanent investors to generate additional fee income and to better
manage interest rate risks. In 2002, mortgage banking revenue totaled $620,000,
an increase of $99,000 or 19.0 percent compared to the year earlier second
quarter. The Company expects to derive further revenue growth in the future by
increasing its market penetration and expanding the sources of fees collected
from this business.
Greater usage of check cards during the second quarter 2002 by core deposit
customers and an increased cardholder base increased interchange income to
$252,000, an increase of $70,000 or 38.5 percent from the prior year. Other
deposit based electronic funds transfer income increased $25,000 or 38.5 percent
to $90,000. Service charges on deposits increased slightly year over year to
$1,270,000.
The Company's marine financing division (Seacoast Marine Finance) produced $16.1
million in luxury yacht loans in the second quarter compared to $13.8 million in
the first quarter of 2002. A total of $12.5 million was sold in the second
quarter 2002 compared to $11.7 million in the first quarter. In addition to the
fees earned from the loan sales, the division collected one time incentive
income of $31,000 in June 2002. Seacoast Marine Finance is headquartered in Ft.
Lauderdale, Florida with lending professionals in Florida, Texas and California.
The emphasis is on marine loans of $200,000 and greater.
Noninterest income, excluding gains and losses from securities sales, totaled
$8,016,000 for the six-month period ending June 30, 2002, an increase of
$627,000 or 8.5 percent from the same period last year. As in the quarterly
comparison, the more significant increases were in mortgage banking, check card
interchange income, marine finance fees and brokerage commissions and fees,
increasing year over year $426,000, $127,000, $114,000 and $157,000,
respectively. Year-to-date trust income decreased $182,000 year over year, hit
by financial market turmoil.
Proceeds from the sale of securities totaled $398,000 and $66,000 during the
second and first quarter of 2002, respectively, compared to $422,000 and
$145,000 in each of the same quarters in 2001. Sales in 2002 were transacted to
realize appreciation on securities that management believed had reached their
maximum potential total return. Sales of investments in 2001 were transacted to
restructure the portfolio for the new declining interest rate environment.
NONINTEREST EXPENSES
When compared to 2001, noninterest expenses for the second quarter increased by
$480,000 or 5.0 percent to $10,002,000. The Company's overhead ratio has
decreased over the last several years. The 61.4 percent efficiency ratio for the
second quarter of 2002 was a 100 basis point improvement from 62.4 percent a
year ago.
Salaries and wages increased $178,000 or 4.8 percent to $3,855,000 compared to
the prior year quarter. Base salaries increased $276,000 or 8.8 percent, but
were offset by declines of $39,000 in temporary services, $23,000 in incentives,
and an increase in deferred loan origination costs of $27,000. The increase in
base salaries included $20,000 for the addition of the Ft. Pierce WalMart branch
in mid-2001, $15,000 for additional support staff in mortgage banking, and
$28,000 for an additional commercial lender. Employee benefits increased $61,000
or 6.1 percent to $1,063,000 from the second quarter of 2001. Higher group
health insurance costs were the primary cause for the increase in benefit
expenditures for 2002.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
decreased $74,000 to $1,330,000, versus second quarter results last year.
Depreciation for furniture and equipment was $69,000 lower.
Outsourced data processing costs totaled $1,185,000 for the second quarter of
2002, an increase of $111,000 or 10.3 percent from a year ago. The Company
utilizes third parties for its core data processing system and merchant services
processing. Costs associated with each increased $62,000 and $37,000,
respectively. 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.
Costs associated with foreclosed and repossessed asset management and
disposition totaled only $18,000, a reflection of low nonperforming asset
balances (see "Nonperforming Assets") in the second quarter 2002. Legal and
professional costs increased $157,000 or 52.7 percent to $455,000 when compared
to 2001's second quarter, a result of various regulatory and shareholder
communications regarding the simplification of the Company's capital structure
and a number of other changes to its Articles of Incorporation approved by
shareholders (see "Part II. Other Information, Item 4, Submission of Matters to
a Vote of Security Holders").
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 $42,000 or 8.9 percent to $514,000 when compared to a year ago.
Amortization of goodwill and other intangibles declined $75,000 or 54.3 percent
to $63,000 year over year, entirely due to a change in accounting. Under
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets," goodwill is no longer amortized as of January 1, 2002.
Noninterest expenses for the six-month period ending June 30, 2002 were
$1,069,000 or 5.7 percent higher, totaling $19,770,000. Changes year over year
were as follows: 1) salaries and wages increased $536,000 or 7.6 percent, 2)
employee benefits grew $181,000 or 9.4 percent, 3) occupancy and furniture and
equipment expenses declined $87,000 or 4.9 percent, on an aggregate basis, 4)
outsourced data processing costs increased $294,000 or 12.2 percent, 5) legal
and professional fees grew $173,000 or 28.5 percent, 6) marketing expenses were
$37,000 or 3.7 percent higher, and 7) amortization of goodwill and other
intangibles declined $150,000 or 54.3 percent.
INCOME TAXES
Income taxes as a percentage of income before taxes were 39.1 percent for the
first six months of this year, compared to 39.3 percent in 2001.
FINANCIAL CONDITION
CAPITAL RESOURCES
The Company's ratio of average shareholders' equity to average total assets
during the first six months of 2002 was 7.80 percent, compared to 7.74 percent
during the first six months of 2001. The Company manages the size of its equity
through a program of share repurchases of its outstanding Common stock. In
treasury stock at June 30, 2002, there were 1,569,675 shares totaling
$17,012,000, compared to 1,412,916 shares or $14,740,000 a year ago.
The risk-based capital minimum ratio for total capital to risk-weighted assets
for "well-capitalized" financial institutions is 10%. At June 30, 2002, the
Company's ratio was 13.46 percent.
LOAN PORTFOLIO
Total loans (net of unearned income and excluding the allowance for loan losses)
were $738,001,000 at June 30, 2002, $89,187,000 or 10.8 percent less than at
June 30, 2001, and $47,026,000 or 6.0 percent less than at December 31, 2001.
As part of its ongoing balance sheet and interest rate risk management, the
Company securitized $6.1 million of its residential loans and sold the
investment security in the first quarter of 2002. This transaction and the sale
of current one to four family loan production resulted in a decline in the
Company's residential loan portfolio. During the first six months of 2002, $61.9
million in fixed rate residential mortgage loans were sold compared to $37.1
million during the first six months a year ago. The Company also sold $24.2
million in marine loans (generated by Seacoast Marine Finance), compared to
$27.2 million in the first six months of 2001. Over the past twelve months,
$121.9 million in fixed rate residential loans and $44.2 million in marine loans
have been sold. The loan sales are without recourse.
At June 30, 2002, the Company's mortgage loan balances secured by residential
properties amounted to $315,218,000 or 42.7 percent of total loans (versus
$433,145,000 or 52.4 percent a year ago). The next largest concentration was
loans secured by commercial real estate. The Company's commercial real estate
lending strategy stresses quality loan growth from local businesses,
professionals, experienced developers and investors. At June 30, 2002, the
Company had funded commercial real estate loans totaling $256,634,000. This
amount and unfunded commitments for commercial real estate were comprised of the
following types of loans:
(In millions) Funded Unfunded Total
- --------------------------------------------------------------------------------
Office buildings $ 37.8 $ -- $ 37.8
Retail trade 32.9 -- 32.9
Land development 37.1 36.2 73.3
Industrial 26.7 1.7 28.4
Healthcare 23.2 10.2 33.4
Churches and educational facilities 13.9 0.2 14.1
Recreation 10.5 2.7 13.2
Multifamily 10.9 8.8 19.7
Mobile home parks 5.4 -- 5.4
Land 5.7 1.2 6.9
Lodging 3.5 -- 3.5
Restaurant 3.0 -- 3.0
Miscellaneous 46.0 2.5 48.5
- --------------------------------------------------------------------------------
Total $256.6 $63.5 $320.1
The Company was also a creditor for consumer loans to individual customers
(including installment loans, loans for automobiles, boats, and other personal,
family and household purposes) totaling $99,558,000 (versus $105,168,000 a year
ago). Also increasing, commercial and industrial loans totaled $35,918,000 at
June 30, 2002, compared to $34,983,000 a year ago. 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.
Residential lot loans (for private and investor purposes) totaled $13,274,000,
residential construction loans totaled $5,372,000 and home equity lines
outstanding totaled $11,679,000 at June 30, 2002.
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 component of
the Company's lending activities. Exposure to market interest rate volatility
with respect to mortgage loans is managed by attempting to match maturities and
re-pricing opportunities for assets against liabilities, when possible. At June
30, 2002, approximately $116 million or 37 percent of the Company's residential
mortgage loan balances were adjustable, compared to $183 million or 42 percent a
year ago.
Of the approximate $81 million of new residential loans originated in 2002, $15
million were adjustable and $66 million were fixed rate. Loans secured by
residential properties having fixed rates totaled approximately $200 million at
June 30, 2002, of which 15- and 30-year mortgages totaled approximately $88
million and $70 million, respectively. Remaining fixed rate balances were
comprised of home improvement loans, most with maturities of 10 years or less.
The Company's historical charge-off rates for residential real estate loans have
been minimal, with $14,000 in net recoveries for the first six months of 2002
compared to $12,000 in net recoveries for all of 2001. The Company considers
residential mortgages less susceptible to adverse effects from a downturn in the
real estate market.
Fixed rate and adjustable rate loans secured by commercial real estate,
excluding construction loans, totaled approximately $98 million and $102
million, respectively, at June 30, 2002, compared to $126 million and $90
million, respectively, a year ago.
At June 30, 2002, the Company had commitments to make loans (excluding unused
home equity lines of credit) of $103,666,000, compared to $84,382,000 at June
30, 2002.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses totaled $6,902,000 at June 30, 2002, $283,000
lower than one year earlier and $132,000 lower than at December 31, 2001. During
the first half of 2002, net charge-offs of $120,000 on commercial loans and
$48,000 on consumer loans were partially offset by recoveries on residential
real estate loans, commercial real estate loans, and credit cards of $14,000,
$8,000, and $14,000, respectively. A year ago, net charge-offs of $33,000 were
recorded during the first six months.
Although the allowance balance declined $283,000 over the last 12 months, the
ratio of the allowance for loan losses to net loans outstanding increased 7
basis points to 0.94 percent at June 30, 2002. This ratio was 0.87 percent at
June 30, 2001 and 0.90 percent at December 31, 2001. The allowance for loan
losses as a percentage of nonaccrual loans and loans 90 days or more past due
was 366.2 percent at June 30, 2002, compared to 326.3 percent at the same date
in 2001.
The model utilized to analyze the adequacy of the allowance for loan losses
takes into account such factors as credit quality, loan concentrations internal
controls, audit results, staff turnover, local market economics and loan growth.
The resulting allowance is reflective of the subsidiary bank's favorable and
consistent delinquency trends, historical loss performance, and a decline in
loan balances. The allowance for loan losses represents management's estimate of
an amount adequate in relation to the risk of losses inherent in the loan
portfolio. The size of the allowance also reflects the large amount of
residential real estate loans held by the Company whose historical charge-offs
and delinquencies have been favorable and the growth in commercial real estate
loans over the last few years.
Concentration of credit risk, discussed under "Loan Portfolio" of this
discussion and analysis, also impacts 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 June 30, 2002, the Company had $602 million in
loans secured by real estate, representing 81.6 percent of total loans, down
from 83.0 percent at June 30, 2001. 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
that 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 year-end 2001, the Company's allowance for loan losses 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 that must be charged off and to assess the risk characteristics of the
portfolio in 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.
NONPERFORMING ASSETS
At June 30, 2002, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned ("OREO") was 0.27 percent, compared to
0.26 percent one year earlier.
At June 30, 2002, there were $11,000 in accruing loans past due 90 days or more
and OREO of $119,000 was outstanding. In 2001 on the same date, there were
$273,000 in accruing loans past due 90 days or more and OREO balances of
$192,000 were outstanding.
Nonaccrual loans totaled $1,874,000 at June 30, 2002, compared to a balance of
$1,929,000 at June 30, 2001. Nonaccrual loans outstanding at June 30, 2002 that
were performing with respect to payments totaled $365,000. The performing loans
were placed on nonaccrual status because the Company has determined that the
collection of principal or interest in accordance with the terms of such loans
is uncertain. Of the amount reported in nonaccrual loans at June 30, 2002, 96
percent is secured with real estate, the remainder by other collateral.
Management does not expect significant losses for which an allowance for loan
losses has not been provided associated with the ultimate realization of these
assets.
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.
SECURITIES
At June 30, 2002, the Company had $354,484,000 or 93.7 percent of total
securities available for sale and securities held to maturity were carried at an
amortized cost of $23,809,000, representing 6.3 percent of total securities. The
Company's securities portfolio increased $170,377,000 or 81.9 percent from June
30, 2001 and $74,282,000 or 24.4 percent from December 31, 2001. Maturities and
sales of securities of $138.9 million and $37.3 million, respectively, and
purchases totaling $252.3 million were transacted during the first six months of
2002. Securities activity reflects an effort to invest funds for better
performance as well as for the likely potential of an increasing interest rate
environment in the future. Sales in the first six months of 2002 were transacted
to realize appreciation on securities that management believed had reached their
maximum potential total return.
Management controls the Company's interest rate risk by maintaining a low
average duration for the securities portfolio and with securities returning
principal monthly that can be reinvested. At June 30, 2002, the duration of the
portfolio was 1.5 years.
Unrealized net securities gains of $3,368,000 at June 30, 2002, compared to net
gains of $1,566,000 at June 30, 2001 and $3,041,000 at December 31, 2001. The
Federal Reserve did not alter interest rates during the first six months of
2002.
Company management considers the overall quality of the securities portfolio to
be high. No securities are held which are not traded in liquid markets.
DEPOSITS / BORROWINGS
Total deposits increased $42,787,000 or 4.4 percent to $1,013,972,000 at June
30, 2002, compared to one year earlier. Certificates of deposits decreased
$48,463,000 or 11.3 percent to $378,762,000 over the past twelve months, lower
cost interest bearing deposits (NOW, savings and money markets deposits)
increased $69,771,000 or 17.9 percent to $459,251,000, and noninterest bearing
demand deposits increased $21,479,000 or 13.9 percent to $175,959,000. 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 products in this
environment, such as its Investor NOW and Money Manager product offerings,
enhanced growth in lower cost interest bearing deposits.
Repurchase agreement balances decreased $9,423,000 or 19.7 percent to
$38,498,000 at June 30, 2002. 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. The number of sweep repurchase accounts declined
from 120 a year ago to 101 at June 30, 2002, with some customers closing sweep
repurchase relationships due to the low interest rate environment and diminished
benefit of utilizing a sweep repurchase agreement, and choosing to maintain
balances in traditional deposit products.
At June 30, 2002, other borrowings were the same year over year at $40,000,000,
entirely comprised of funding from the Federal Home Loan Bank (FHLB).
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 an immediate change in interest rates (up
or down) of 200 basis points. The Company's most recent ALCO model simulation
indicated net interest income would increase 0.8 percent if interest rates would
immediately rise 200 basis points. It has been the Company's experience that
non-maturity core deposit balances are stable and subjected to limited
re-pricing when interest rates increase or decrease within a range of 200 basis
points.
On June 30, 2002, the Company had a negative gap position based on contractual
and prepayment assumptions for the next twelve months, with a negative
cumulative interest rate sensitivity gap as a percentage of total earning assets
of 8.5 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 risk management profile. The Company does not
presently use interest rate protection products in managing its interest rate
sensitivity.
CRITICAL ACCOUNTING ESTIMATES
Management after consultation with its independent auditors and the audit
committee believes that the most critical accounting estimates 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 estimates are as follows:
Allowance and Provision for Loan Losses
The information contained on pages 12 and 16-19 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 company's accounting estimates.
Securities Available for Sale
The fair value of the Available for Sale portfolio at June 30, 2002 exceeded
historical amortized cost, producing unrealized gains of $3,368,000. The fair
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 fair 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 portfolios, 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 June 30, 2002 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 June 30, 2002.
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 June 30, 2002, the total
fair value of those rights was $930,000. 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 MANAGEMENT
Contractual maturities for assets and liabilities are reviewed to adequately
maintain current and expected future liquidity requirements. Sources of
liquidity, both anticipated and unanticipated, are maintained through a
portfolio of high quality marketable assets, such as residential mortgage loans,
securities available for sale and federal funds sold. The Company has access to
federal funds lines of credit and is able to provide short term financing of its
activities by selling, under an agreement to repurchase, United States Treasury
and Government agency securities not pledged to secure public deposits or trust
funds. At June 30, 2002, the Company had available lines of credit of
$137,500,000. The Company also had $279,817,000 of United States Treasury and
Government agency securities and mortgage backed securities not pledged and
available for use under repurchase agreements. At June 30, 2001, the amount of
securities available and not pledged was $130,269,000.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $40,634,000 at June 30, 2002 as compared to
$87,476,000 at June 30, 2001. Cash and cash equivalents vary with seasonal
deposit movements and are generally higher in the winter than in the summer, and
vary with the level of principal repayments and investment activity occurring in
the Company's securities portfolio and loan portfolio.
IMPACT OF 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 level of inflation. However, inflation affects financial institutions'
increased cost of goods and services purchased, the cost of salaries and
benefits, occupancy expense, and similar items. Inflation and related increases
in interest rates generally decrease the market value of investments and loans
held and may adversely affect liquidity, earnings, and shareholders' equity.
Mortgage originations and 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.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
This discussion and analysis contains "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, including statements with respect to our beliefs,
plans, objectives, goals, expectations, anticipations, estimates and intentions,
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", "may", "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;
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 bank 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 including,
without limitation, those risks and uncertainties, described in the Company's
annual report on Form 10-K for the year ended December 31, 2001 under "Special
Cautionary Notice Regarding Forward Looking Statements", and otherwise in the
Company's Securities and Exchange Commission (SEC) reports and filings. Such
reports are available upon request from Seacoast, or from the SEC, including the
SEC's website at http://www.sec.gov.
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2002 Annual Meeting of Shareholders was held on April 18, 2002.
(b) All directors reported to the Commission in the 2002 Proxy statement
were elected in entirety.
(c) The following matters were voted upon at the meeting:
(1) Proposal 1 - The election of 11 directors to serve until their
successors have been elected and qualified. Out of 7,151,288 votes
represented at the meeting, the number of votes cast for and against
(or withheld) their election were 6,942,719 (88.8%) and 208,569,
respectively. All directors were elected.
(2) Proposal 2 - The approval of an amendment to Article III of the
Company's Articles of Incorporation clarifying, without limited or
expanding, the Company's objects and purposes. Out of 7,151,288 votes
represented at the meeting, 6,463,494 votes (82.6%) were cast in favor
and 75,096 votes were cast against the amendment. The amendment was
approved.
(3) Proposal 3 - The approval of an amendment to Article IV of the
Company's Articles to eliminate the Class B Common Stock and cause its
conversion to Common Stock. Out of the 3,311,380 Class B votes
represented at the meeting, 3,180,520 votes (90.9%) were cast in favor
and 32,220 votes were cast against. Out of all 7,151,288 votes
represented at the meeting, 6,419,684 votes (82.1%) were cast in favor
and 112,554 votes were cast against. The amendment was approved.
(4) Proposal 4 - The approval of an amendment to Article IV of the
Company's Articles to rename the Class A Common Stock as "Common
Stock" and to increase the authorized shares of Common Stock from
10,000,000 to 22,000,000 shares to accommodate the conversion of all
shares of Class B Common Stock and to provide additional shares of
Common Stock that the Board has no commitment to issue. Out of the
3,839,908 Class A votes represented at the meeting, 3,576,679 votes
(82.8%) were cast in favor and 240,463 votes were cast against. Out of
all 7,151,288 votes represented at the meeting, 6,827,639 votes
(87.3%) were cast in favor and 288,283 votes were cast against. The
amendment was approved.
(5) Proposal 5 - The approval of an amendment to Article IV of the
Company's Articles to increase the authorized shares of Preferred
Stock from 1,000,000 to 4,000,000, no shares of which are outstanding,
and which the Board has no commitment to issue. Out of 7,151,288 votes
represented at the meeting, 5,767,705 votes (73.8%) were cast in favor
and 766,705 votes were cast against. The amendment was approved.
(6) Proposal 6 - The approval of amendments to the Company's Articles to
(i) divide the Board of Directors into three classes, (ii) provide
that any vacancies on the Board of Directors shall be filled by vote
of 66 2/3% of the directors then in office and a majority of
continuing directors, or, if no directors remain, by vote of 66 2/3%
of the votes entitled to be cast and a majority of independent
shareholders, (iii) provide that directors may be removed only for
cause and only upon the affirmative vote of 66 2/3% of shares entitled
to vote and a majority of independent shareholders, and (iv) increase
the shareholder vote required to amend the foregoing provisions. Out
of 7,151,288 shares represented at the meeting, 5,745,698 votes
(73.5%) were cast in favor and 794,892 were cast against. The
amendments were approved.
(7) Proposal 8 - The approval of an amendment to the Company's Articles
permitting the Board of Directors, when evaluating business
combinations, to consider other constituencies and factors in addition
to the adequacy and form of consideration offered. Out of 7,151,288
votes represented at the meeting, 5,865,279 votes (75.0%) were cast in
favor and 673,144 votes were cast against. The amendment was approved.
(8) Proposal 9 - The approval of amendments to the Company's Articles
providing that (i) the Bylaws may be amended upon the affirmative vote
of 66 2/3% of the Board of Directors and a majority of the continuing
directors, or upon the affirmative vote of 66 2/3% of the votes
entitled to be cast by shareholders and a majority of independent
shareholders, and (ii) the Board of Directors may set the exact number
of directors upon the affirmative vote of 66 2/3% of the directors,
together with a majority of the continuing directors. Out of 7,151,288
votes represented at the meeting, 5,748,432 votes (73.5%) were cast in
favor and 798,188 were cast against. The amendments were approved.
(9) Proposal 10 - The approval of an amendment to the Company's Articles
eliminating shareholder action by written consent. Out of 7,151,288
votes represented at the meeting, 5,792,257 votes (74.1%) were cast in
favor and 749,419 votes were cast against. The amendment was approved.
(10) Proposal 11 - The approval of an amendment to the Company's Articles
increasing the minimum shareholder vote necessary to call a special
meeting of shareholders from 10% to 20% of all the shares entitled to
vote. Out of 7,151,288 votes represented at the meeting, 5,814,664
votes (74.4%) were cast in favor and 735,966 votes were cast against.
The amendment was approved.
(11) Proposal 12 - The approval of amendments to the Company's Articles
requiring shareholders seeking to submit proposals to a vote of
shareholders or to nominate directors to first comply with certain
advance notice and disclosure procedures. Out of 7,151,288 votes
represented at the meeting, 6,765,558 votes (86.5%) were cast in favor
and 365,401 votes were cast against. The amendments were approved.
(12) Proposal 13 - The approval of an amendment to the Company's Articles
providing that the Articles may be amended only upon the affirmative
vote of 66 2/3% of the votes entitled to be cast, and that amending
certain provisions also requires approval of a majority of the
independent shareholders. Out of 7,151,288 votes represented at the
meeting, 5,765,366 votes (73.7%) were cast in favor and 779,197 votes
were cast against. The amendment was approved.
(13) Proposal 7 - The approval of an amendment to the Company's Articles
revising the current provisions for supermajority approvals required
for certain business combinations so that a business combination may
be accomplished without prior approval of the Board of Directors by
vote of 66 2/3% of the shares entitled to vote and a majority of
independent shareholders, or, if 66 2/3% of Board of Directors and a
majority of the continuing directors has approved a business
combination, the business combination may be accomplished by the
affirmative vote of a majority of shares entitled to vote. Out of the
3,839,908 Class A votes represented at the meeting, 2,562,729 votes
(59.3%) were cast in favor and 725,362 votes cast against. Out of
7,151,288 votes represented at the meeting, 5,758,669 votes (73.6%)
were cast in favor and 725,362 were cast against. Voting requirements
for approval of the amendment were not met.
The following resolution was proposed and adopted. "Resolved that
the Company's Board of Directors and its proper officers are
authorized and directed to include the definitions and other
provisions contained in Section 7.01 and its various subsections and
to maintain the substantive provisions of Article XI of the current
Articles of Incorporation with respect to Business Combinations and to
otherwise make such changes to the form of Amended and Restated
Articles of Incorporation as they deem appropriate and consistent with
the other resolutions authorized by the Board of Directors and
shareholders."
It was further proposed that the meeting be adjourned to May 17,
2002 solely to provide shareholders additional time to vote on this
amendment; as a result the following resolution was proposed and
adopted. "Resolved, that Seacoast's 2002 Annual Meeting of
Shareholders would be adjourned and reconvene on May 17, 2002 at 3:00
PM local time at Seacoast's principal offices at 815 Colorado Avenue,
Stuart, Florida, solely to provide shareholders additional time to
vote on Proposal 7."
(d) Reconvened 2002 Annual Meeting of Shareholders on May 17, 2002. The
following matters were reported:
(1) The Chairman presented for consideration and vote, the proposal before
the shareholders: Proposal 7 - To approve an amendment to the
Company's Articles revising the current provisions for supermajority
approvals required for certain business combinations so that a
business combination may be accomplished without prior approval of the
Board of Directors by vote of 66 2/3% of the shares entitled to vote
and a majority of independent shareholders, or, if 66 2/3% of Board of
Directors and a majority of the continuing directors has approved a
business combination, the business combination may be accomplished by
the affirmative vote of a majority of shares entitled to vote.
The tabulated results were presented. Out of the 3,839,908 Class
A votes represented at the meeting, 2,704,000 votes (62.6%) were cast
in favor and 685,390 votes cast against. Out of 7,168,548 shares
represented at the meeting, 6,003,240 votes (76.8%) were cast in favor
and 702,190 votes cast against. The voting requirements for approval
of Proposal 7 were not met. The proposal was not approved.
Item 6. Exhibits and Reports on Form 8-K
Form 8-K filed on May 24, 2002
On May 21, 2002, the Board of Directors of Seacoast Banking
Corporation of Florida, upon recommendation of the Company's Audit
Committee, approved the replacement of Arthur Andersen, LLP as its
independent public accountants and appointed PricewaterhouseCoopers,
LLP as its new independent accountants.
Form 8-K filed on June 18, 2002
On June 12, 2002, Seacoast Banking Corporation of Florida's
subsidiary, First National Bank and Trust Company of the Treasure
Coast, and Nola Maddox Falcone, CFA, announced the formation of
Seacoast Asset Management, LLC, a registered investment advisor. First
National Bank and Trust Company of the Treasure Coast contributed
capital representing 55 percent ownership interest and Nola Maddox
Falcone contributed capital representing a 45 percent interest in
Seacoast Asset Management, LLC. Ms. Falcone is a 30-year Wall Street
veteran having served as Co-CEO of Evergreen Asset Management
Corporation, investment manager of the Evergreen Funds, a mutual fund
complex that was purchased by First Union Corporation in 1994.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEACOAST BANKING CORPORATION OF FLORIDA
August 14, 2002 /s/ Dennis S. Hudson, III
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DENNIS S. HUDSON, III
President &
Chief Executive Officer
August 14, 2002 /s/ William R. Hahl
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WILLIAM R. HAHL
Executive Vice President &
Chief Financial Officer