Back to GetFilings.com
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 SEPTEMBER 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 September 30, 2002:
Common Stock, $.10 Par Value - 13,900,350 shares
INDEX
SEACOAST BANKING CORPORATION OF FLORIDA
Part I FINANCIAL INFORMATION PAGE #
Item 1 Financial Statements (Unaudited)
Condensed consolidated balance sheets -
September 30, 2002 and December 31, 2001 3 - 4
Condensed consolidated statements of income -
Three months and nine months ended September 30, 2002
and 2001 5
Condensed consolidated statements of cash flows -
Nine months ended September 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
Item 3 Quantitative and Qualitative Disclosures about Market
Risk 25
Item 4 Evaluation of Disclosure Controls and Procedures 25
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 26
SIGNATURES 27
Part I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
(Dollars in thousands, September 30, December 31,
except per share data) 2002 2001
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $42,762 $47,104
Federal funds sold 18,695 45,010
Securities:
Held for sale (at fair value) 346,870 280,822
Held for investment (fair values:
$24,292 at September 30, 2002,
$26,230 at December 31, 2001) 23,419 25,530
-----------------------------
TOTAL SECURITIES 370,289 306,352
Loans available for sale 14,317 19,135
Loans 718,871 785,027
Less: Allowance for loan losses (6,833) (7,034)
-----------------------------
NET LOANS 712,038 777,993
Bank premises and equipment, net 16,078 15,357
Other assets 13,423 15,013
-----------------------------
$1,187,602 $1,225,964
=============================
LIABILITIES
Deposits $1,006,953 $1,015,154
Federal funds purchased and securities
sold under agreements to repurchase,
maturing within 30 days 35,855 71,704
Other borrowings 40,000 40,000
Other liabilities 5,911 5,587
-----------------------------
1,088,719 1,132,445
CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
- --------------------------------------------------------------------------------
Seacoast Banking Corporation of Florida and Subsidiaries
(Dollars in thousands, September 30, December 31,
except per share data) 2002 2001
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share,
authorized 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 13,900,350
shares at September 30, 2002, issued
15,549,378 and outstanding is 13,960,821
shares at December 31, 2001. 1,555 1,555
Additional paid-in capital 26,887 26,887
Retained earnings 87,474 80,886
Less: Treasury stock
1,649,028 shares at September 30, 2002
1,588,557 shares at December 31, 2001 (18,402) (17,239)
----------------------------------
97,514 92,089
Other comprehensive income 1,369 1,430
----------------------------------
TOTAL SHAREHOLDERS'
EQUITY 98,883 93,519
----------------------------------
$1,187,602 $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 Nine Months Ended
September 30, September 30,
-----------------------------------------
(Dollars in thousands,
except per share data) 2002 2001 2002 2001
- --------------------------------------------------------------------------------
Interest and dividends on securities $3,662 $3,391 $10,834 $10,271
Interest and fees on loans 13,643 16,480 42,543 50,058
Interest on federal funds sold 43 266 466 1,205
------------------------------------------
Total Interest Income 17,348 20,137 53,843 61,534
Interest on deposits 1,261 2,020 3,887 6,552
Interest on time certificates 3,526 5,726 11,768 18,096
Interest on borrowed money 728 941 2,370 3,190
------------------------------------------
Total Interest Expense 5,515 8,687 18,025 27,838
------------------------------------------
NET INTEREST INCOME 11,833 11,450 35,818 33,696
Provision for loan losses 0 0 0 0
------------------------------------------
Net Interest Income After
Provision for Loan Losses 11,833 11,450 35,818 33,696
Noninterest income
Securities gains (losses) (9) 8 455 575
Other income 3,854 3,561 11,870 10,950
------------------------------------------
Total Noninterest Income 3,845 3,569 12,325 11,525
Total Noninterest Expenses 9,921 9,441 29,691 28,142
------------------------------------------
INCOME BEFORE INCOME TAXES 5,757 5,578 18,452 17,079
Provision for income taxes 2,250 2,195 7,210 6,716
------------------------------------------
NET INCOME $3,507 $3,383 $11,242 $10,363
==========================================
- --------------------------------------------------------------------------------
PER SHARE COMMON STOCK:
Net income basic $ 0.25 $ 0.24 $ 0.80 $ 0.73
Net income diluted 0.25 0.24 0.79 0.72
Cash Dividends Declared 0.10 0.09 0.30 0.28
AVERAGE SHARES OUTSTANDING
Basic 13,927,347 14,105,748 13,975,898 14,141,141
Diluted 14,281,777 14,379,609 14,302,834 14,327,212
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Nine Months Ended
September 30,
- --------------------------------------------------------------------------------
(Dollars in thousands) 2002 2001
- --------------------------------------------------------------------------------
Cash (used in) provided by
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 57,839 $ 61,701
Fees and commissions received 12,253 11,206
Interest paid (18,321) (28,041)
Cash paid to suppliers and employees (27,075) (25,166)
Income taxes paid (6,951) (6,847)
------------------------
Net cash provided by operating activities 17,745 12,853
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of securities
held for sale 207,237 61,071
Proceeds from maturity of securities held
for investment 2,082 3,072
Proceeds from sale of securities held for
sale 37,279 135,041
Purchase of securities held for sale (313,939) (226,992)
Purchase of securities held for investment 0 (15,798)
Net new loans and principal repayments 70,700 14,456
Proceeds from the sale of other real estate
owned 75 305
Additions to bank premises and equipment (2,131) (582)
Net change in other assets 153 1,240
------------------------
Net cash provided by (used in) investing
activities 1,456 (28,187)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (8,192) 18,920
Net decrease in federal funds purchased and
repurchase agreements (35,849) (24,474)
Exercise of stock options 520 972
Treasury stock acquired (2,159) (3,239)
Dividends paid (4,178) (3,922)
------------------------
Net cash used in financing activities (49,858) (11,743)
------------------------
Net decrease in cash and cash equivalents (30,657) (27,077)
Cash and cash equivalents at beginning of
period 92,114 72,505
------------------------
Cash and cash equivalents at end of period $ 61,457 $ 45,428
========================
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries
Nine Months Ended
September 30,
- --------------------------------------------------------------------------------
(Dollars in thousands) 2002 2001
-------------- --------------
Reconciliation of Net Income to Cash Provided by
Operating Activities
Net Income $ 11,242 $ 10,363
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 5,738 2,174
Securities gains (455) (575)
Loss (gain) on sale and write down of foreclosed
assets (2) 10
Gain on disposition of fixed assets (3) (1)
Change in interest receivable 243 220
Change in interest payable (296) (203)
Change in prepaid expenses 407 265
Change in accrued taxes 569 185
Change in other liabilities 302 415
------------------------
Total adjustments 6,503 2,490
------------------------
Net cash provided by operating activities $ 17,745 $ 12,853
========================
- --------------------------------------------------------------------------------
Supplemental disclosure of noncash investing activities:
Transfers from loans to other real estate owned $ 73 $ 100
Change in net unrealized securities gains (107) 6,980
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 nine-month
period ended September 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.
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.
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 September 30, 2002 and 2001, comprehensive income was as follows:
Three Months Ended September 30,
(Dollars in thousands) 2002 2001
--------------------------------
Net income $3,507 $3,383
Net unrealized gains (losses) -
securities (net of tax) (302) 1,424
--------------------------------
Comprehensive income $3,205 $4,807
================================
Nine Months Ended September 30,
(Dollars in thousands) 2002 2001
--------------------------------
Net income $11,242 $10,363
Net unrealized gains (losses) -
securities (net of tax) (61) 4,300
--------------------------------
Comprehensive income $11,181 $14,663
================================
- --------------------------------------------------------------------------------
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, second or third 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 Nine Months Ended
September 30 September 30
-------------------------------------------------
(Dollars in thousands,
except per share data) 2002 2001 2002 2001
-------------------------------------------------
Basic:
Net Income $3,507 $3,383 $11,242 $10,363
Average shares outstanding 13,927,347 14,105,748 13,975,898 14,141,141
Basic EPS $0.25 $0.24 $0.80 $0.73
Diluted:
Net Income $3,507 $3,383 $11,242 $10,363
Average shares outstanding 13,927,347 14,105,748 13,975,898 14,141,141
Net effect of dilutive stock
Options-based on treasury
Stock method 354,430 273,861 326,936 186,071
-------------------------------------------------
Total 14,281,777 14,379,609 14,302,834 14,327,212
Diluted EPS $0.25 $0.24 $0.79 $0.72
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 September 30, 2002 and $138,000 or $0.010 diluted
earnings per share for the nine-month period ending September 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
THIRD 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 third quarter of 2002 totaled $3,507,000 or $0.25 per share
diluted, compared to $4,049,000 or $0.28 per share diluted in the second quarter
of 2002 and $3,686,000 or $0.26 per share diluted recorded in the first quarter
of 2002, and was higher than the $3,383,000 or $0.24 per share diluted reported
in the third quarter of 2001. Profits realized from investment securities sold
added $244,000 or $0.019 per share diluted to second quarter 2002's results.
Note that earnings per share results for the current and prior periods reflect
the 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 1.17 percent and return on average shareholders'
equity was 14.19 percent for the third quarter of 2002, compared to second
quarter 2002's results of 1.33 percent and 16.76 percent and first quarter
2002's performance of 1.18 percent and 15.45 percent, respectively, and the
prior year's third quarter results of 1.16 percent and 14.72 percent,
respectively.
NET INTEREST INCOME
Net interest income (on a fully taxable equivalent basis) for the third quarter
of 2002 totaled $11,879,000, $381,000 or 3.1 percent lower than for the second
quarter of 2002 and $375,000 or 3.3 percent higher than for the third quarter of
2001. Partially, net interest income in the third quarter each year is affected
by lower business volumes, a seasonal impact that reverses in the fourth
quarter. For the nine-month period ended September 30, 2002, net interest income
(on a tax equivalent basis) increased $2,089,000 or 6.2 percent year over year
to $35,955,000.
Net interest margin on a tax equivalent basis decreased 6 basis points to 4.17
percent for the third quarter of 2002 from 4.23 percent for the second 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 third quarter of 2002 decreased 12 basis
points to 2.40 percent from second quarter, with rates for certificates of
deposit (CDs) and short-term borrowings (principally composed of low cost sweep
repurchase agreements) decreasing the most, 37 and 23 basis points,
respectively. The average balance for time deposits decreased slightly,
$2,544,000 or 0.7 percent to $376,684,000, and short-term borrowings declined
$18,780,000 or 34.5 percent to $35,664,000. The average balance for NOW, savings
and money market balances (aggregated) decreased $10,502,000 or 2.2 percent from
second quarter 2002, and totaled $459,884,000 for the third quarter. Average
noninterest bearing deposits decreased $5,614,000 or 3.2 percent to
$171,255,000. Growth in low-cost / no cost funding sources is normally impacted
seasonally in third quarter. The Company continues to focus on its longstanding
strategy of building core customer relationships and tailoring its products and
services to satisfy these customers.
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 third quarter of 2002 declined 18
basis points to 6.10 percent from second quarter 2002. Decreases in the yield on
loans of 23 basis points to 7.30 percent and the yield on securities of 25 basis
points to 3.90 percent were partially offset by the yield on federal funds sold
increasing 4 basis points to 1.72 percent during the third quarter of 2002.
Average earning assets for the third quarter of 2002 decreased $31,202,000 or
2.7 percent when compared to 2002's second quarter. Average loan balances
declined $11,845,000 or 1.6 percent to $742,176,000, average investment
securities increased $3,689,000 or 1.0 percent to $378,551,000, and average
federal funds sold decreased $23,046,000 to $9,933,000. 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 interest rate risks,
these loans were sold servicing released. Activity in the Company's securities
portfolio was significant, with maturing securities of $70.4 million and
purchases totaling $61.7 million transacted during the third quarter. A flatter
yield curve in the third quarter increased principal repayments from the
Company's fixed rate collateralized mortgage obligation (CMO) investments. The
average duration of the $303,027,000 in fixed rate CMOs declined from 1.5 years
to 1.0 year at September 30, 2002. Monthly cash returned from these investments
are estimated to average $30 million per month for the fourth quarter 2002 if
there are no further changes in interest rates. Should interest rates decline
further, monthly cash return could increase to $36 million per month. If the
yield curve would become steeper by 50 basis points, cash returned would
decrease to approximately $20-25 million per month. Because many of the
securities' original purchase prices were above par, the yield on the securities
portfolio will fluctuate in inverse proportion to the changes in cash flows
noted above due to the amortization of the premium. Securities activity reflects
an effort to manage excess funding and maintain a stable net interest margin.
For the third quarter of 2001, the net interest margin was 4.13 percent. The
yield on average earning assets was 7.26 percent and rate on interest-bearing
liabilities was 3.80 percent.
The mix of earning assets and interest bearing liabilities has changed since
third quarter 2001. Loans (the highest yielding component of earning assets) as
a percentage of average earning assets totaled 65.6 percent in the third quarter
of 2002 compared to 75.6 percent a year ago, while securities increased from
21.7 percent to 33.5 percent and federal funds sold decreased from 2.7 percent
to 0.9 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 41.3 percent, compared to 46.5 percent in the third quarter of
2001, reflecting diminished funding requirements. Approximately $97 million in
CDs matured during the third quarter of 2002. Approximately $76 million in CDs
will mature in the fourth quarter of 2002, providing opportunity for these
volumes to re-price to lower rates. Lower cost interest bearing deposits (NOW,
savings and money market balances) increased to 50.4 percent of interest bearing
liabilities, versus 44.3 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) decreased to 8.3
percent of interest bearing liabilities for the third quarter of 2002 from 9.2
percent in 2001.
PROVISION FOR LOAN LOSSES
No provisioning was recorded in the first, second or third quarter of 2002 nor
in any quarter in 2001, reflecting the Company's credit quality, low net
charge-offs and nonperforming assets, and slower loan growth. Net charge-offs
totaled $201,000 for the first nine months of 2002, compared to net charge-offs
of $169,000 in 2001. Net charge-offs annualized as a percent of average loans
were at 0.04 percent for the first nine months of 2002, compared to 0.03 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.
Besides loan mix, the overall level of net charge-offs can be impacted by a
decline in economic activity. Management believes that its credit granting
process contains a disciplined approach that mitigates this risk and lowers the
likelihood of significant increases in charge-offs and nonperforming loans
during economic slowdowns.
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 classification, 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
$3,854,000 for the third quarter of 2002, $293,000 or 8.2 percent higher than
for the same period last year. Noninterest income was favorably impacted by
growth in fee-based businesses. Noninterest income accounted for 24.6 percent of
operating revenues in the third quarter, compared to 23.7 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 an increase of $14,000 or 2.5 percent and third quarter's result was an
improvement of $46,000 or 11.0 percent (to $463,000) versus a year earlier.
Trust income was lower for the third quarter 2002, declining $54,000 or 9.2
percent to $535,000 compared to last year for the same period. Financial markets
improved recently but are more likely to remain troubled. Even so, as
demonstrated by 2002's results, the Company believes it can be successful in its
efforts 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 $630,000,
an increase of $96,000 or 18.0 percent compared to the year earlier third
quarter. Mortgage banking revenue for the third quarter would have been higher
if not for a $100,000 fair value adjustment to mortgage servicing rights. The
Company expects to derive further revenue growth in the future by increasing its
market penetration, market expansion and expanding the sources of fees collected
from this business. In August 2002, the Company opened a loan production office
in Northern Palm Beach County and added three loan originators. Mortgage banking
revenues are partially dependent upon favorable interest rates, as well as, good
overall economic conditions. Both have been favorable in 2002. Additionally, the
expansion into the fast growing Palm Beach market (Florida's top wealth market,
expected to grow at over 20 percent over the next ten years) is expected to
generate additional loan production and support ongoing increases in mortgage
banking fees should the interest rate and economic environment remain favorable.
Greater usage of check cards during the third quarter 2002 by core deposit
customers and an increased cardholder base increased interchange income to
$253,000, an increase of $62,000 or 32.5 percent from the prior year. Other
deposit based electronic funds transfer (EFT) fees increased $10,000 or 12.8
percent to $88,000. Service charges on deposits increased $60,000 or 4.8 percent
year over year to $1,321,000.
Marine finance fees totaled $189,000, an increase of $30,000 or 18.9 percent
from third quarter a year ago. The Company's marine financing division (Seacoast
Marine Finance) produced $13.3 million in luxury yacht loans in the third
quarter compared to $16.1 million and $13.8 million in the second and first
quarter of 2002, respectively. A total of $11.5 million was sold in the third
quarter 2002 compared to $12.5 million and $11.7 million in the second and first
quarter of 2002, respectively. 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. The Company continues
to look for opportunities to expand its market penetration of its marine finance
business.
Noninterest income, excluding gains and losses from securities sales, totaled
$11,870,000 for the nine-month period ending September 30, 2002, an increase of
$920,000 or 8.4 percent from the same period last year. As in the quarterly
comparison, the more significant increases were in mortgage banking, check card
interchange income, other deposit based EFT fees, marine finance fees and
brokerage commissions and fees, increasing year over year $522,000, $189,000,
$66,000, $144,000 and $203,000, respectively. Year-to-date trust income
decreased $236,000 year over year, as a result of the financial market turmoil
reducing asset volumes under management.
Gains (losses) from the sale of securities totaled ($9,000), $398,000 and
$66,000 during the third, second and first quarter of 2002, respectively,
compared to $8,000, $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 third quarter increased by
$480,000 or 5.1 percent to $9,921,000. The Company's overhead ratio has
decreased over the last several years. However, the 63.1 percent efficiency
ratio for the third quarter of 2002 was slightly higher than the 62.7 percent
ratio recorded a year ago.
Salaries and wages increased $148,000 or 3.9 percent to $3,940,000 compared to
the prior year quarter. Base salaries increased $173,000 or 5.3 percent and
commissions were $43,000 or 14.7 percent higher, but were partially offset by
declines of $23,000 in temporary services and $40,000 in incentives. The
increase in base salaries and commissions included $9,000 for staffing of the
new Port St. Lucie WalMart branch which opened October 16, 2002, $31,000 for
commercial and residential lending personnel at the Jupiter loan production
office opened on August 1, 2002, and $18,000 for additional commercial lending
personnel at the Company's Ft. Pierce location. Employee benefits increased
$133,000 or 14.3 percent to $1,064,000 from the third quarter of 2001. Higher
group health insurance costs were the primary cause, up $76,000 year over year,
but profit sharing and payroll taxes were higher as well, increasing $31,000 and
$26,000, respectively.
Occupancy expenses and furniture and equipment expenses, on an aggregate basis,
decreased $34,000 to $1,334,000, versus third quarter results last year.
Depreciation for furniture and equipment was $38,000 lower.
Outsourced data processing costs totaled $1,183,000 for the third quarter of
2002, an increase of $53,000 or 4.7 percent from a year ago. The Company
utilizes a third party for its core data processing system. Costs associated
with this system increased $35,000 or 6.2 percent. 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 $16,000, a reflection of low nonperforming asset
balances (see "Nonperforming Assets") in the third quarter 2002. Legal and
professional costs increased $84,000 or 29.7 percent to $367,000 when compared
to 2001's third quarter, primarily a result of legal costs related to the
formation of Seacoast Asset Management, LLC.
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 9.2 percent to $498,000 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.
Other expenses increased $122,000 or 9.5 percent to $1,412,000. Impacting
expense in the third quarter were higher expenditures for employment advertising
and referral fees to third parties for lending activities, up year over year
$31,000 and $19,000, respectively. Remaining expenses were higher, but generally
increased with inflation and growth in business volumes.
Noninterest expenses for the nine-month period ending September 30, 2002 were
$1,549,000 or 5.5 percent higher, totaling $29,691,000. As in the quarterly
discussion, the more significant changes year over year were as follows: 1)
salaries and wages increased $684,000 or 6.3 percent, 2) employee benefits grew
$314,000 or 11.0 percent, 3) occupancy and furniture and equipment expenses
declined $121,000 or 2.9 percent, on an aggregate basis, 4) outsourced data
processing costs increased $317,000 or 9.6 percent, 5) legal and professional
fees grew $257,000 or 28.9 percent, 6) marketing expenses were $79,000 or 5.5
percent higher, 7) amortization of goodwill and other intangibles declined
$225,000 or 54.3 percent, and 8) other expenses increased $266,000 or 6.6
percent.
INCOME TAXES
Income taxes as a percentage of income before taxes were 39.1 percent for the
first nine 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 nine months of 2002 was 7.95 percent, compared to 7.79 percent
during the first nine months of 2001. A total of 664,509 stock option shares are
outstanding, of which 650,509 are exercisable. During the first nine months of
2002, 66,963 shares were exercised. The Company also has a Board approved share
repurchase program of its outstanding Common stock. In treasury stock at
September 30, 2002, there were 1,649,028 shares totaling $18,402,000, compared
to 1,531,158 shares or $16,378,000 a year ago.
The risk-based capital minimum ratio for total capital to risk-weighted assets
for "well-capitalized" financial institutions is 10%. At September 30, 2002, the
Company's ratio was 13.62 percent.
LOAN PORTFOLIO
Total loans (net of unearned income and excluding the allowance for loan losses)
were $718,871,000 at September 30, 2002, $104,336,000 or 12.7 percent less than
at September 30, 2001, and $66,156,000 or 8.4 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 production one to four family loans contributed to the decline in the
Company's loan portfolio. During the first nine months of 2002, $86.4 million in
fixed rate residential mortgage loans were sold compared to $62.4 million during
the first nine months a year ago. The Company also sold $35.7 million in marine
loans (generated by Seacoast Marine Finance), compared to $36.8 million in the
first nine months of 2001. Over the past twelve months, $121.1 million in fixed
rate residential loans and $46.2 million in marine loans have been sold. The
loan sales are without recourse.
At September 30, 2002, the Company's mortgage loan balances secured by
residential properties amounted to $299,844,000 or 41.7 percent of total loans
(versus $399,253,000 or 48.5 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 September 30, 2002, the
Company had funded commercial real estate loans totaling $253,634,000
outstanding. This amount and unfunded commitments for commercial real estate
were comprised of the following types of loans:
(In millions) Funded Unfunded Total
Office buildings $38.4 $-- $38.4
Retail trade 33.2 .2 33.4
Land development 35.6 31.0 66.6
Industrial 28.0 1.2 29.2
Healthcare 24.4 8.9 33.3
Churches and educational facilities 13.8 0.2 14.0
Recreation 10.8 1.7 12.5
Multifamily 5.9 7.2 13.1
Mobile home parks 5.4 -- 5.4
Land 5.7 0.9 6.6
Lodging 3.5 -- 3.5
Restaurant 2.9 -- 2.9
Miscellaneous 46.0 1.8 47.8
- --------------------------------------------------------------------------------
Total $253.6 $53.1 $306.7
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 $95,172,000 (versus $109,032,000 a year
ago). Also increasing, commercial and industrial loans totaled $37,983,000 at
September 30, 2002, compared to $33,846,000 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 $13,797,000, residential construction loans totaled $6,064,000
and home equity lines outstanding totaled $12,111,000 at September 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
September 30, 2002, approximately $111 million or 37 percent of the Company's
residential mortgage loan balances were adjustable, compared to $159 million or
40 percent a year ago.
Of the approximate $120 million of new residential loans originated in 2002
($86.4 million were sold), $22 million were adjustable and $98 million were
fixed rate. Loans secured by residential properties having fixed rates totaled
approximately $189 million at September 30, 2002, of which 15- and 30-year
mortgages totaled approximately $80 million and $65 million, respectively.
Remaining fixed rate balances were comprised of home improvement loans, most
with maturities of 10 years or less. In comparison, 15- and 30-year fixed rate
residential mortgages at September 30, 2001 totaled approximately $104 million
and $89 million, respectively.
The Company's historical charge-off rates for residential real estate loans have
been minimal, with $16,000 in net recoveries for the first nine months of 2002
compared to $7,000 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 $97 million and $105
million, respectively, at September 30, 2002, compared to $124 million and $95
million, respectively, a year ago.
At September 30, 2002, the Company had commitments to make loans (excluding
unused home equity lines of credit) of $119,440,000, compared to $92,706,000 at
September 30, 2001.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses totaled $6,833,000 at September 30, 2002, $216,000
lower than one year earlier and $201,000 lower than at December 31, 2001. During
the first nine months of 2002, net charge-offs of $120,000 on commercial loans,
$103,000 on consumer loans, $8,000 on commercial real estate loans and $4,000 on
home equity lines of credit were partially offset by recoveries on residential
real estate loans and credit cards of $16,000 and $18,000, respectively. A year
ago, net charge-offs of $169,000 were recorded during the first nine months.
Although the allowance balance declined $216,000 over the last 12 months, the
ratio of the allowance for loan losses to net loans outstanding increased 9
basis points to 0.95 percent at September 30, 2002. This ratio was 0.86 percent
at September 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 292.6 percent at September 30, 2002, compared to 372.6 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 the decline in
loans outstanding over the last twelve months. 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 September 30, 2002, the Company had $585
million in loans secured by real estate, representing 81.4 percent of total
loans, down slightly from 82.6 percent at September 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 September 30, 2002, the Company's ratio of nonperforming assets to loans
outstanding plus other real estate owned ("OREO") was 0.34 percent, compared to
0.24 percent one year earlier.
At September 30, 2002, there were no accruing loans past due 90 days or more and
OREO of $119,000 was outstanding. In 2001 on the same date, there were $27,000
in accruing loans past due 90 days or more and OREO balances of $131,000 were
outstanding.
Nonaccrual loans totaled $2,335,000 at September 30, 2002, compared to a balance
of $1,865,000 at September 30, 2001. Nonaccrual loans outstanding at September
30, 2002 that were performing with respect to payments totaled $913,000. 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
September 30, 2002, 75 percent is secured with real estate, the remainder by
other collateral.
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 September 30, 2002, the Company had $344,637,000 or 93.6 percent of total
securities available for sale and securities held to maturity at an amortized
cost of $23,419,000, representing 6.4 percent of total securities. The Company's
securities portfolio increased $115,753,000 or 45.9 percent from September 30,
2001 and $64,045,000 or 21.1 percent from December 31, 2001. Maturities and
sales of securities of $209.3 million and $37.3 million, respectively, and
purchases totaling $313.9 million were transacted during the first nine 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.
Management controls the Company's overall interest rate risk by maintaining a
low average duration for the securities portfolio through the acquisition of
securities returning principal monthly that can be reinvested. At September 30,
2002, the duration of the portfolio was approximately 1.0 years.
Unrealized net securities gains totaled $3,106,000 at September 30, 2002,
compared to net gains of $4,004,000 at September 30, 2001 and $3,041,000 at
December 31, 2001. The Federal Reserve did not alter interest rates during the
first nine 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 $29,945,000 or 3.1 percent to $1,006,953,000 at
September 30, 2002, compared to one year earlier. Certificates of deposit
decreased $38,168,000 or 9.2 percent to $378,647,000 over the past twelve
months, lower cost interest bearing deposits (NOW, savings and money markets
deposits) increased $47,361,000 or 11.7 percent to $450,975,000, and noninterest
bearing demand deposits increased $20,752,000 or 13.3 percent to $177,331,000.
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 believes its success in marketing desirable
products in this environment, such as its tiered money market and Money Manager
product offerings, enhanced growth in lower cost interest bearing deposits.
Repurchase agreement balances decreased over the past 12 months by $4,691,000 or
11.6 percent to $35,855,000 at September 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 100 at September 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 September 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 interest 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 measured using simulation modeling to calculate a most likely impact for
interest rate risk utilizing estimated loan and deposit growth. The objective is
to optimize the Company's financial position, liquidity, and net interest income
while limiting their volatility.
Senior management regularly reviews the Company's interest rate risk position
and evaluates 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 parallel 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 2.8 percent if interest rates would
gradually rise 200 basis points over the next 12 months. While management places
a lower probability on further rate declines after the last 50 basis point
reduction on November 6, 2002, the model simulation indicates net interest
income would decrease 2.7% and 7.2% over the next 12 months given a gradual
decline in interest rates of 100 and 200 basis points respectively. 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 September 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 2.1 percent.
The computations of interest rate risk do not necessarily include all 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 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 13 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 September 30, 2002
exceeded historical amortized cost, producing unrealized gains of $2,233,000.
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 is no longer be amortized,
but tested for impairment. The amount of goodwill at September 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 September 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 September 30, 2002, the
total estimated fair value of those rights was $724,000. 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 September 30, 2002, the Company had available lines of credit of
$137,500,000. The Company also had $282,043,000 of United States Treasury and
Government agency securities and mortgage backed securities not pledged and
available for use under repurchase agreements. At September 30, 2001, the amount
of securities available and not pledged was $173,607,000.
Liquidity, as measured in the form of cash and cash equivalents (including
federal funds sold), totaled $61,457,000 at September 30, 2002 as compared to
$45,428,000 at September 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Management's Discussion and Analysis "Interest Rate Sensitivity".
Item 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The management of the Company including Mr. Dennis S. Hudson, III as Chief
Executive Officer and Mr. William R. Hahl as Chief Financial Officer have
evaluated the Company's disclosure controls and procedures. Under rules
promulgated by The SEC, disclosure controls and procedures are defined as those
"controls or other procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the reports filed or
submitted by it under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and
forms." Based on the evaluation of the Company's disclosure controls and
procedures, it was determined that such controls and procedures were effective
as of November 13, 2002, the date of the conclusion of the evaluation.
Further, there were no significant changes in the internal controls or in other
factors that could significantly affect these controls after November 13, 2002,
the date of the conclusion of the evaluation of disclosure controls and
procedures.
CERTIFICATION
I, Dennis S. Hudson, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Seacoast Banking
Corporation of Florida;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
______________________________________
/s/ Dennis S. Hudson, III
President & Chief Executive Officer
CERTIFICATION
I, William R. Hahl, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Seacoast Banking
Corporation of Florida;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
______________________________________
/s/ William R. Hahl
Chief Financial Officer
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed for the three-month period ended
September 30, 2002.
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
November 14, 2002 /s/ Dennis S. Hudson, III
- ----------------- ----------------------------------
DENNIS S. HUDSON, III
President &
Chief Executive Officer
November 14, 2002 /s/ William R. Hahl
- ----------------- ---------------------------------
WILLIAM R. HAHL
Executive Vice President &
Chief Financial Officer