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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended Commission File
DECEMBER 31, 1998 No. 0-13660
SEACOAST BANKING CORPORATION OF FLORIDA
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(Exact name of registrant as specified in its charter)
Florida 59-2260678
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
815 Colorado Avenue, Stuart, FL 34994
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(Address of principal executive offices) (Zip code)
(561) 287-4000
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(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, Par Value $.10
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 12, 1999:
CLASS A COMMON STOCK, $.10 par value - $123,411,222 based upon the closing sale
price on February 12, 1999, using beneficial ownership stock rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934, to exclude voting
stock owned by directors and certain executive officers, some of whom may not be
held to be affiliates upon judicial determination.
CLASS B COMMON STOCK, $.10 par value - $10,136,151 based upon the closing sale
price on February 12, 1999, of the Class A Common Stock, $.10 par value, into
which each share of Class B Common Stock, $.10 par value, is immediately
convertible on a one-for-one basis, using beneficial ownership stock rules
adopted pursuant to Section 13 of the Securities Exchange Act of 1934, to
exclude voting stock owned by directors and certain executive officers, some of
whom may not be held to be affiliates upon judicial determination.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of February 12, 1999:
Class A Common Stock, $.10 Par Value - 4,570,786 shares
Class B Common Stock, $.10 Par Value - 375,413 shares
Documents Incorporated by Reference:
1. Portions of the registrant's 1999 Proxy Statement for the Annual Meeting
of Shareholders to be held April 22, 1999 ("1999 Proxy Statement") are
incorporated by reference into Part III.
FORM 10-K CROSS-REFERENCE INDEX
Page of
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Form Annual
10-K Report
Part I
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Item 1. Business 1-16 --
Item 2. Properties 16-20 --
Item 3. Legal Proceedings 20 --
Item 4. Submission of Matters to a
Vote of Security-Holders 20 --
Part II
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Item 5. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters 21-22 31
Item 6. Selected Financial Data 23 4
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 23 18-30
Item 7A. Market Risk 23 27
Item 8. Financial Statements and 331-33
Supplementary Data & 35-49
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 23 --
Page of
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Form
10-K Proxy
Part III
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Item 10. Directors and Executive Officers 24 2-8
of the Registrant
Item 11. Executive Compensation 24 6-15
Item 12. Security Ownership of Certain
Beneficial Owners and Management 24 2-7,16
Item 13. Certain Relationships and Related 24 15-16
Transactions
Page of
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Form Annual
10-K Report
Part IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
(a)(1) List of All Financial Statements 25
Consolidated Balance Sheets as
of December 31, 1998 and 1997 -- 37
Consolidated Statements of Income
for the years ended December 31,
1998, 1997 and 1996 -- 36
Consolidated Statements of Shareholders'
Equity for the years ended December 31,
1998, 1997 and 1996 -- 39
Consolidated Statements of Cash Flows
for the years ended December 31,
1998, 1997, and 1996 -- 38,47
Notes to Consolidated Financial
Statements -- 40-49
Report of Independent Certified
Public Accountants -- 35
(a)(2) List of Financial Statement Schedules 25 --
(a)(3) List of Exhibits 25-27 --
(b) Reports on Form 8-K 27 --
(c) Exhibits 27 --
(d) Financial Statement Schedules 27 --
SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made herein under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere are
forward-looking statements for purposes of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"),and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Seacoast Banking Corporation of Florida ("Seacoast" or the
"Company") to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
forward looking statements include statements using the words such as "may",
"will", "anticipate", "should", "would", "believe", "contemplate", "expect",
"estimate", "continue", "may", "intend" or other similar words and expressions
of the future. Our actual results may differ significantly from the results we
discuss in these forward looking statements.
These forward looking statements involve risks and uncertainties and 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 banking products and
services by mail, telephone, computer and the Internet; the possible effects of
the Year 2000 problem on the Company, including such problems at the Company's
vendors, counter- parties and customers; and the failure of assumptions
underlying the establishment of reserves for possible loan losses. All written
or oral forward looking statements attributable to the Company are expressly
qualified in their entirety by these Cautionary Statements.
Part I
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Item 1. Business
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General
Seacoast is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("BHC Act"). Seacoast was incorporated
under the laws of the State of Florida on January 24, 1983, by the
management of its principal subsidiary, First National Bank and Trust
Company of the Treasure Coast (the "Bank") for the purpose of becoming a
holding company for the Bank. On December 30, 1983, Seacoast acquired all
of the outstanding shares of the common stock of the Bank in exchange for
810,000 shares of its $.10 par value Class A common stock ("Class A Common
Stock") and 810,000 shares of its $.10 par value Class B common stock
("Class B Common Stock").
The Bank commenced operations in 1933 under the name "Citizens Bank of
Stuart" pursuant to a charter originally granted by the State of Florida in
1926. The Bank converted to a national banking association on August 29,
1958.
Through the Bank and its broker-dealer subsidiary, Seacoast offers a full
array of deposit accounts and retail banking services, engages in consumer
and commercial lending and provides a wide variety of trust and asset
management services, as well as securities and annuity products. Seacoast's
primary service area is the "Treasure Coast", which, as defined by
Seacoast, consists of the counties of Martin, St. Lucie and Indian River on
Florida's southeastern coast. The Bank operates banking offices in the
following cities: five in Stuart, two in Palm City, one in Jensen Beach,
two on Hutchinson Island, one in Hobe Sound, five in Vero Beach, two in
Sebastian, five in Port St. Lucie, and one in Ft. Pierce.
Most of the banking offices have one or more Automatic Teller Machines
(ATM) which provide customers with 24-hour access to their deposit
accounts. Seacoast is a member of two state-wide funds transfer systems
known as the "HONOR System" and the "Presto System", which permit banking
customers access to their accounts at over 35,000 locations in twenty-one
states in the Southeast. The HONOR System also permits the Bank's customers
access to their accounts via other systems outside the State of Florida.
Customers can also use the Bank's "MoneyPhone" system to access information
on their loan or deposit account balances, to transfer funds between linked
accounts, to make loan payments, and to verify deposits or checks that may
have cleared. This service is accessible by phone 24 hours a day, seven
days a week.
In addition, customers may access information via the Bank's Telephone
Banking Center ("TBC"). From 7 A.M. to 7 P.M., Monday through Friday,
servicing personnel in the TBC are available to open accounts, take
applications for certain types of loans, resolve account problems and offer
information on other bank products and services to existing and potential
customers. The Company recently began offering PC banking for personal
computers.
Seacoast has three indirect subsidiaries. FNB Brokerage Services, Inc.
("FNB Brokerage") provides brokerage services. South Branch Building, Inc.
is a general partner in a partnership which constructed a branch facility.
Big O RV Resort, Inc. was formed to own and operate certain properties
acquired through foreclosure, but is currently inactive. The operations of
these subsidiaries contribute less than 10% of the consolidated assets and
revenues of Seacoast.
As a bank holding company, Seacoast is a legal entity separate and distinct
from its subsidiaries. Seacoast coordinates the financial resources of the
consolidated enterprise and maintains financial, operational and
administrative systems that allow centralized evaluation of subsidiary
operations and coordination of selected policies and activities. Seacoast's
operating revenues and net income are derived primarily from its
subsidiaries through dividends, fees for services performed and interest on
advances and loans. See "Supervision and Regulation".
As of December 31, 1998, Seacoast and its subsidiaries employed 404
full-time equivalent employees.
Expansion of Business
Seacoast has expanded its products and services to meet the changing needs
of the various segments of its market and it expects to continue this
strategy. Prior to 1991, Seacoast had expanded geographically primarily
through the addition of branches, including the acquisition of a thrift
branch in St. Lucie County.
More recently, Seacoast has from time to time considered acquisitions of
other depository institutions or corporations engaged in bank-related
activities. On September 20, 1991, the Bank acquired from the Resolution
Trust Corporation (the "RTC") 10 branches and approximately $110 million of
deposits of a failed thrift, American Pioneer Federal Savings Bank
("American Pioneer"), for a deposit premium of $752,000 (of which $146,000
remains outstanding as an intangible asset at December 31, 1998). Following
the acquisition, the Bank temporarily rented all of the branch facilities
from the RTC at commercially reasonable rates to preserve existing customer
relationships and to facilitate their transfer to the Bank. On October 18,
1991, the Bank ceased renting the branch office facilities that it did not
intend to acquire in order to avoid duplication of existing facilities.
After negotiation, definitive agreements with the RTC were executed for the
purchase of five branch facilities. See "Item 2. Properties".
On April 14, 1995, the Bank acquired approximately $46 million in loans and
$62 million in deposits by purchasing American Bank Capital Corporation of
Florida ("American Bank") and it's subsidiary, American Bank of Martin
County. The transaction was treated as a purchase for accounting purposes
with the Bank paying $9.3 million in cash. At December 31, 1998, intangible
assets resulting from this acquisition include goodwill of $3,282,000 and
core deposit premium of $1,158,000. Following the acquisition, the Bank
closed its existing East Ocean office location to move to a more attractive
location acquired from American Bank, and continued to operate an office
location owned by American Bank in southern Martin County. See "Item 2.
Properties".
On May 30, 1997, Seacoast acquired Port St. Lucie National Bank Holding
Corp. ("PSHC") pursuant to which Seacoast issued and exchanged Class A
Common Stock for all of the outstanding shares of PSHC common stock,
warrants and options to purchase common stock of PSHC. PSHC merged with and
into Seacoast and PSHC's subsidiary bank, Port St. Lucie National Bank,
merged with and into the Bank. The transaction, which had a value of
approximately $26 million, was accounted for under the pooling-of-interests
method for business combinations. As of May 30, 1997, PSHC had total
consolidated assets of approximately $130 million, loans of $94 million and
deposits of $116 million.
Florida law permits state-wide branching and Seacoast has expanded, and
anticipates future expansion in its markets, by opening additional offices
and facilities. New banking facilities were opened in November 1994 in St.
Lucie West, a new community west of Port St. Lucie, and in May 1996 in a
WalMart superstore in Sebastian in northern Indian River County. In January
1997, Seacoast opened a branch in Nettles Island, a predominately modular
home community on Hutchinson Island in southern St. Lucie County. In May,
June and July 1997, and in March 1998, four additional branch offices were
opened in Indian River County. See "Item 2. Properties".
Competition
Seacoast and its subsidiaries operate in the highly competitive markets of
Martin, St. Lucie and Indian River Counties in southeastern Florida. The
Bank not only competes with other banks in its markets, but it also
competes with various other types of financial institutions for deposits,
certain commercial, fiduciary and investment services and various types of
loans and certain other financial services. The Bank also competes for
interest-bearing funds with a number of other financial intermediaries and
investment alternatives, including mutual funds, brokerage and insurance
firms, governmental and corporate bonds, and other securities.
Seacoast and its subsidiaries compete not only with financial institutions
based in the State of Florida, but also with a number of large out-of-state
and foreign banks, bank holding companies and other financial institutions
which have an established market presence in the State of Florida, or which
offer products by mail, telephone or over the Internet. Many of Seacoast's
competitors are engaged in local, regional, national and international
operations and have greater assets, personnel and other resources than
Seacoast. Some of these competitors are subject to less regulation and/or
more favorable tax treatment than Seacoast.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under federal
and state law. This discussion is qualified in its entirety by reference to
the particular statutory and regulatory provisions referred to below and is
not intended to be an exhaustive description of the status or regulations
applicable to the Company's and the Bank's business. Supervision,
regulation, and examination of the Company and the Bank and their
respective subsidiaries by the bank regulatory agencies are intended
primarily for the protection of depositors rather than holders of Company
capital stock. Any change in applicable law or regulation may have a
material effect on the Company's business.
Bank Holding Company Regulation
The Company, as a bank holding company, is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System
("Federal Reserve") under the BHC Act. The Company is required to file with
the Federal Reserve periodic reports and such other information as the
Federal Reserve may request. The Federal Reserve examines the Company, and
may examine the Company's Subsidiaries.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially
all the assets of any bank, or for a merger or consolidation of a bank
holding company with another bank holding company. With certain exceptions,
the BHC Act prohibits a bank holding company from acquiring direct or
indirect ownership or control of voting shares of any company which is not
a bank or bank holding company and from engaging directly or indirectly in
any activity other than banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding
company, may, however, engage in or acquire an interest in a company that
engages in activities which the Federal Reserve has determined by
regulation or order to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The Company is a legal entity separate and distinct from the Bank and its
other subsidiaries. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company or its non-bank
subsidiaries. The Company and the Bank are subject to Section 23A of the
Federal Reserve Act. Section 23A defines "covered transactions", which
include extensions of credit, and limits a bank's covered transactions with
any affiliate to 10% of such bank's capital and surplus. All covered and
exempt transactions between a bank and its affiliates must be on terms and
conditions consistent with safe and sound banking practices, and banks and
their subsidiaries are prohibited from purchasing low-quality assets from
the bank's affiliates. Finally, Section 23Arequires that all of a bank's
extensions of credit to an affiliate be appropriately secured by acceptable
collateral, generally United States government or agency securities. The
Company and the Bank also are subject to Section 23B of the Federal Reserve
Act, which generally limits covered and other transactions among affiliates
to terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the bank or its
subsidiary as prevailing at the time for transactions with unaffiliated
companies.
The BHC Act, as amended by the interstate banking provisions of the
Reigle-Neal Interstate Banking and Branch Efficiency Act of 1994
("Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of
banks by bank holding companies, such that Seacoast and any other bank
holding company located in Florida may now acquire a bank located in any
other state, and any bank holding company located outside Florida may
lawfully acquire any bank based in another state, regardless of state law
to the contrary, in either case subject to certain deposit- percentage, age
of bank charter requirements, and other restrictions. The Interstate
Banking Act also generally provides that, after June 1, 1997, national and
state-chartered banks may branch interstate through acquisitions of banks
in other states. By adopting legislation prior to that date, a state has
the ability to either "opt in" and accelerate the date after which
interstate branching is permissible or "opt out" and prohibit interstate
branching altogether. Florida has an Interstate Branching Act ("the Florida
Branching Act"), which permits interstate branching through merger
transactions under the Interstate Banking Act. Under the Florida Branching
Act, with the prior approval of the Florida Department of Banking and
Finance, a Florida bank may establish, maintain and operate one or more
branches in a state other than the State of Florida pursuant to a merger
transaction in which the Florida bank is the resulting bank. In addition,
the Florida Branching Act provides that one or more Florida banks may enter
into a merger transaction with one or more out-of-state banks, and an
out-of-state bank resulting from such transaction may maintain and operate
the branches of the Florida bank that participated in such merger. An
out-of-state bank, however, is not permitted to acquire a Florida bank in a
merger transaction unless the Florida bank has been in existence and
continuously operated for more than three years.
Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank
may not otherwise be warranted. In addition, under the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), where
a bank holding company has more than one bank or thrift subsidiary, each of
the bank holding company's subsidiary depository institutions are
responsible for any losses to the Federal Deposit Insurance Corporation
("FDIC") as a result of an affiliated depository institution's failure. As
a result, a bank holding company may be required to loan money to its
subsidiaries in the form of capital notes or other instruments which
qualify as capital under regulatory rules. However, any loans from the
holding company to such subsidiary banks likely will be unsecured and
subordinated to such bank's depositors and perhaps to other creditors of
the bank.
The Federal Reserve has amended its Regulation Y implementing certain
provisions of The Economic Growth and Regulatory Paperwork Reduction Act of
1996 ("EGRPRA"). Among other things, these amendments to Federal Reserve
Regulation Y reduced the notice and application requirements applicable to
bank and nonbank acquisitions and de novo expansion by well-capitalized and
well-managed bank holding companies; expanded the list of nonbanking
activities permitted under Regulation Y; reduced certain limitations on
previously permitted activities; and amended Federal Reserve anti-tying
restrictions to allow banks greater flexibility to package products and
services with their affiliates.
Bank and Bank Subsidiary Regulation Generally
The Bank is subject to supervision, regulation, and examination by the
Office of the Comptroller of the Currency (the "OCC") which monitors all
areas of the operations of the Bank, including reserves, loans, mortgages,
issuances of securities, payment of dividends, establishment of branches,
capital adequacy, and compliance with laws. The Bank is a member of the
FDIC and, as such, its deposits are insured by the FDIC to the maximum
extent provided by law. See "FDIC Insurance Assessments".
Under present Florida law, the Bank may establish and operate branches
throughout the State of Florida, subject to the maintenance of adequate
capital for each branch and the receipt of OCC approval.
The OCC has adopted a series of revisions to its regulations, including
expanding the powers exercisable by operations subsidiaries. These changes
also modernize and streamline corporate governance, investment and
fiduciary powers.
In December, 1996, the OCC adopted the Federal Financial Institutions
Examination Council's ("FFIEC") updated statement of policy entitled
"Uniform Financial Institutions Rating System" ("UFIRS"), effective January
1, 1997. UFIRS is an internal rating system used by the federal and state
regulators for assessing the soundness of financial institutions on a
uniform basis and for identifying those institutions requiring special
supervisory attention. Under the previous UFIRS, each financial institution
was assigned a confidential composite rating based on an evaluation and
rating of five essential components of an institution's financial condition
and operations including Capital adequacy, Asset quality, Management,
Earnings, and Liquidity. The major changes include an increased emphasis on
the quality of risk management practices and the addition of a sixth
component for Sensitivity to market risk. For most institutions, the FFIEC
has indicated that market risk primarily reflects exposures to changes in
interest rates. When regulators evaluate this component, consideration is
expected to be given to: management's ability to identify, measure,
monitor, and control market risk; the institution's size; the nature and
complexity of its activities and its risk profile, and the adequacy of its
capital and earnings in relation to its level of market risk exposure.
Market risk is rated based upon, but not limited to, an assessment of the
sensitivity of the financial institution's earnings or the economic value
of its capital to adverse changes in interest rates, foreign exchange
rates, commodity prices, or equity prices; management's ability to
identify, measure, monitor and control exposure to market risk; and the
nature and complexity of interest rate risk exposure arising from
nontrading positions.
FNB Brokerage, a Bank subsidiary, is registered as a securities
broker-dealer under the Exchange Act and is regulated by the Securities and
Exchange Commission ("SEC"). As a member of the National Association of
Securities Dealers, Inc., it also is subject to examination and supervision
of its operations, personnel and accounts by NASD Regulation, Inc., a NASD
subsidiary. FNB Brokerage is a separate and distinct entity from the Bank,
and must maintain adequate capital under the SEC's net capital rule, Rule
153(c)-1 under the Securities Exchange Act of 1934. The net capital rule
limits FNB Brokerage's ability to reduce capital by payment of dividends or
other distributions to the Bank.
Community Reinvestment Act
The Company and the Bank are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA") and the federal banking
agencies' regulations thereunder. Under the CRA, all banks and thrifts have
a continuing and affirmative obligation, consistent with their safe and
sound operation to help meet the credit needs for their entire communities,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor
does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's
primary federal regulator, in connection with its examination of the
institution, to assess the institution's record of assessing and meeting
the credit needs of the community served by that institution, including
low- and moderate-income neighborhoods. The regulatory agency's assessment
of the institution's record is made available to the public. Further, such
assessment is required of any institution which has applied to: (i) charter
a national bank; (ii) obtain deposit insurance coverage for a
newly-chartered institution; (iii) establish a new branch office that
accepts deposits; (iv) relocate an office; or (v) merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally
regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be
the basis for denying the application. A less than satisfactory CRA rating
will slow, if not preclude expansion of banking activities.
Current CRA regulations rate institutions based on their actual performance
in meeting community credit needs. CRA performance is evaluated by the OCC,
the Bank's primary federal regulator using a lending test, an investment
test, and a service test. The OCC also will consider: (i) demographic data
about the community; (ii) the institution's capacity and constraints; (iii)
the institution's product offerings and business strategy; and (iv) data on
the prior performance of the institution and similarly-situated lenders.
The lending test -- the most important of the three tests for institutions
other than wholesale and limited purpose (e.g., credit card) banks -- will
evaluate an institution's lending activities as measured by its home
mortgage loans, small business and farm loans, community development loans,
and, at the option of the institution, its consumer loans. Each of these
lending categories will be weighed to reflect its relative importance to
the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's
service area and the opportunities available for this type of lending.
Assessment criteria for the lending test include: (i) geographic
distribution of the institution's lending; (ii) distribution of the
institution's home mortgage and consumer loans among different economic
segments of the community; (iii) the number and amount of small business
and small farm loans made by the institution; (iv) the number and amount of
community development loans outstanding; and (v) the institution's use of
innovative or flexible lending practices to meet the needs of
low-to-moderate income individuals and neighborhoods. At the election of an
institution, or if particular circumstances so warrant, the OCC will take
into account in making their assessments lending by the institution's
affiliates as well as community development loans made by the lending
consortia and other lenders in which the institution has invested. All
Depository institutions are required to report data on their small business
and small farm loans as well as their home mortgage loans, which are
currently required to be reported under the Home Mortgage Disclosure Act.
The investment test focuses on qualified investments within a bank's
service area that (i) benefit low-to-moderate income individuals and small
businesses or farms; (ii) address affordable housing needs; or (iii)
involve donations of branch offices to minority or women's depository
institutions. The institution's performance under the investment test
depends upon the dollar amount of the institution's qualified investments,
its use of innovative or complex techniques to support community
development initiatives, and its responsiveness to credit and community
development needs.
The service test evaluates an institution's systems for delivering retail
banking services, and considers such factors as: (i) the geographic
distribution of the institution's branch offices and ATMs; (ii) the
institution's record of opening and closing branch offices and ATMs; and
(iii) the availability of alternative product delivery systems such as home
banking and loan production offices in low-to-moderate income areas. The
OCC also will consider an institution's community development service as
part of the service test.
Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. Seacoast and the Bank are
ineligible for these streamlined criteria. In addition, subject to prior
approval by its principal federal regulator, financial institutions have
the option of having their CRA performance evaluated based on a strategic
plan of up to five years in length that it develops in cooperation with
local community groups. The Bank has no such plan.
The CRA regulations provide that an institution will receive a CRA rating
for each test of: "outstanding," "high satisfactory," "low satisfactory,"
"needs to improve," or "substantial non-compliance." An institution will
receive a certain number of points for its rating on each test, and the
points are combined to produce an overall composite rating of either
"outstanding," "satisfactory," "needs to improve," or "substantial
non-compliance." Under the agencies' rating guidelines, an institution that
receives an "outstanding" rating on the lending test will receive an
overall rating of at least "satisfactory", and no institution can receive
an overall rating of "satisfactory" unless it receives a rating of at least
"low satisfactory" on its lending test. In addition, evidence of
discriminatory or other illegal credit practices would adversely affect an
institution's overall rating. Under the new regulations, an institution's
CRA rating would continue to be taken into account by its primary federal
regulator in considering various types of applications. As a result of the
Bank's most recent CRA examination in September 1997, the Bank received a
"satisfactory" CRA rating.
The Bank is also subject to, among other things, the provisions of the
Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the
"FHA"), both of which prohibit discrimination based on race or color,
religion, national origin, sex, and familial status in any aspect of a
consumer or commercial credit or residential real estate transaction. Based
on recently heightened concerns that some prospective home buyers and other
borrowers may be experiencing discriminatory treatment in their efforts to
obtain loans, the Department of Housing and Urban Development, the
Department of Justice (the "DOJ"), and the federal banking agencies in
April 1994 issued an Interagency Policy Statement on Discrimination in
Lending in order to provide guidance to financial institutions in
determining whether discrimination exists, how the agencies will respond to
lending discrimination, and what steps lenders might take to prevent
discriminatory lending practices. The DOJ has also increased its efforts to
prosecute what it regards as violations of the ECOA and FHA.
Payment of Dividends
The Company is a legal entity separate and distinct from its banking and
other subsidiaries. The prior approval of the OCC is required if the total
of all dividends declared by a national bank (such as the Bank) in any
calendar year will exceed the sum of such bank's net profits for the year
and its retained net profits for the preceding two calendar years, less any
required transfers to surplus. Federal law also prohibits any national bank
from paying dividends that would be greater than such bank's undivided
profits after deducting statutory bad debt in excess of such bank's
allowance for loan losses.
In addition, the Company and the Bank are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition
of a national or state member bank or a bank holding company that the
payment of dividends would be an unsafe or unsound practice and to prohibit
payment thereof. The OCC and the Federal Reserve have indicated that paying
dividends that deplete a national or state member bank's capital base to an
inadequate level would be an unsound and unsafe banking practice. The OCC
and the Federal Reserve have each indicated that financial depository
institutions should generally pay dividends only out of current operating
earnings.
Capital
The Federal Reserve and the OCC have risk-based capital guidelines for bank
holding companies and national banks, respectively. These guidelines
require a minimum ratio of capital to risk-weighted assets (including
certain off-balance- sheet activities, such as standby letters of credit)
of 8%. At least half of the total capital must consist of common equity,
retained earnings and a limited amount of qualifying preferred stock, less
goodwill and certain core deposit intangibles ("Tier 1 capital"). The
remainder may consist of non-qualifying preferred stock, qualifying
subordinated, perpetual, and/or mandatory convertible debt, term
subordinated debt and intermediate term preferred stock and up to 45% of
pretax unrealized holding gains on available for sale equity securities
with readily determinable market values that are prudently valued, and a
limited amount of any loan loss allowance and up to 45% of pretax ("Tier 2
capital" and, together with Tier 1 capital, "Total Capital").
In addition, the Federal Reserve and the OCC have established minimum
leverage ratio guidelines for bank holding companies and national banks,
which provide for a minimum leverage ratio of Tier 1 capital to adjusted
average quarterly assets ("leverage ratio") equal to 3%, plus an additional
cushion of 1.0% - 2.0%, if the institution has less than the highest
regulatory rating. The guidelines also provide that institutions
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Higher capital may be required in individual cases, and depending upon a
bank holding company's risk profile. All bank holding companies and banks
are expected to hold capital commensurate with the level and nature of
their risks including the volume and severity of their problem loans.
Lastly, the Federal Reserve's guidelines indicate that the Federal Reserve
will continue to consider a "tangible Tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The
Federal Reserve and OCC have not advised the Company or the Bank of any
specific minimum leverage ratio or tangible Tier 1 leverage ratio
applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to
take "prompt corrective action" regarding depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital
tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", and "critically undercapitalized". A
depository institution's capital tier will depend upon how its capital
levels compare to various relevant capital measures and certain other
factors, as established by regulation.
All of the federal banking agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the Total Capital ratio, Tier 1 capital ratio, and the
leverage ratio. Under the regulations, a national bank will be (i) well
capitalized if it has a Total Capital ratio of 10% or greater, a Tier 1
capital ratio of 6% or greater, and is not subject to any written
agreement, order, capital directive, or prompt corrective action directive
by a federal bank regulatory agency to meet and maintain a specific capital
level for any capital measure, (ii) adequately capitalized if it has a
Total Capital ratio of 8% or greater, a Tier 1 capital ratio of 4% or
greater, and a leverage ratio of 4% or greater (3% in certain
circumstances), (iii) undercapitalized if it has a Total Capital ratio of
less than 8%, a Tier 1 capital ratio of less than 4% (3% in certain
circumstances), or (iv) critically undercapitalized if its tangible equity
is equal to or less than 2% of average quarterly tangible assets.
As of December 31, 1998, the consolidated capital ratios of the Company and
the Bank were as follows:
Regulatory
Minimum Company Bank
------- ------- ----
Tier 1 capital ratio 4.0% 11.1% 11.0%
Total capital ratio 8.0% 12.0% 12.0%
Leverage ratio 3.0-5.0% 7.1% 7.1%
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee
to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit a capital restoration plan
for approval. For a capital restoration plan to be acceptable, the
depository institution's parent holding company must guarantee that the
institution comply with such capital restoration plan. The aggregate
liability of the parent holding company is limited to the lesser of 5% of
the depository institution's total assets at the time it became
undercapitalized and the amount necessary to bring the institution into
compliance with applicable capital standards. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized. If the controlling holding company fails to fulfill its
obligations under FDICIA and files (or has filed against it) a petition
under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the
bank holding company. Significantly undercapitalized depository
institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets, and cessation of receipt
of deposits from correspondent banks. Critically undercapitalized
institutions are subject to the appointment of a receiver or conservator.
Because the Company and the Bank exceed applicable capital requirements,
the respective managements of the Company and the Bank do not believe that
the provisions of FDICIA have had any material impact on the Company and
the Bank or their respective operations.
FDICIA
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth compensation, a maximum ratio of classified assets
to capital, minimum earnings sufficient to absorb losses, a minimum ratio
of market value to book value for publicly traded shares, and such other
standards as the federal regulatory agencies deem appropriate.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Bank, including new reporting
requirements, regulatory standards for real estate lending, "truth in
savings" provisions, the requirement that a depository institution give 90
days prior notice to customers and regulatory authorities before closing
any branch, and a prohibition on the acceptance or renewal of brokered
deposits by depository institutions that are not well capitalized or are
adequately capitalized and have not received a waiver from the FDIC. Under
regulations relating to brokered deposits, the Bank is well capitalized and
not restricted.
Enforcement Policies and Actions
The Federal Reserve and the OCC monitor compliance with laws and
regulations. Violations of laws and regulations, or other unsafe and
unsound practices, may result in these agencies imposing fines or
penalties, cease and desist orders, or taking other enforcement actions.
Under certain circumstances, these agencies may enforce these remedies
directly against officers, directors, employees and others participating in
the affairs of a bank or bank holding company.
Depositor Preference
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation
against an insured depository institution would be afforded a priority over
other general unsecured claims against such an institution in the
"liquidation or other resolution" of such an institution by any receiver.
Fiscal and Monetary Policy
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits
and its other borrowings, and the interest received by a bank on its loans
and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of Seacoast and the Bank are
subject to the influence of economic conditions generally, both domestic
and foreign, and also to the monetary and fiscal policies of the United
States and its agencies, particularly the Federal Reserve. The Federal
Reserve regulates the supply of money through various means, including open
market dealings in United States government securities, the discount rate
at which banks may borrow from the Federal Reserve, and the reserve
requirements on deposits. The nature and timing of any changes in such
policies and their effect on Seacoast and its subsidiaries cannot be
predicted.
FDIC Insurance Assessments
The Bank is subject to FDIC deposit insurance assessments. The Bank's
deposits are primarily insured by the FDIC's Bank Insurance Fund ("BIF").
The Bank is also a member of the Savings Association Insurance Fund
("SAIF") to the extent that the Bank holds deposits acquired in 1991 from
the RTC. The FDIC assesses deposits under a risk-based premium schedule.
Each financial institution is assigned to one of three capital groups,
"well capitalized," "adequately capitalized" or "undercapitalized," and
further assigned to one of three subgroups within a capital group, on the
basis of supervisory evaluations by the institution's primary federal and,
if applicable, state regulators and other information relevant to the
institution's financial condition and the risk posed to the applicable
insurance fund. The actual assessment rate applicable to a particular
institution, therefore, depends in part upon the risk assessment
classification so assigned to the institution by the FDIC. In the third
quarter of 1996, a special one-time SAIF assessment of $0.657 per $100 of
deposits was levied, resulting in a $500,000 charge to the Bank. During the
years ended December 31, 1998, and 1997, the Bank paid no deposit premiums,
except for the FICO assessments of $135,000 and $136,000, respectively.
The FDIC's Board of Directors has continued the 1998 BIF and SAIF
assessment schedule of zero to 27 basis points per annum for the first
semiannual period of 1999. EGRPRA recapitalized the FDIC's SAIF Fund to
bring it into parity with BIF. As part of this recapitalization, The
Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized FICO to
levy assessments through the earlier of December 31, 1999 or the merger of
BIF and SAIF, on BIF-assessable deposits at a rate equal to one-fifth of
the FICO assessment rate applied to SAIF deposits. The FICO assessments are
set quarterly and ranged from 1.256 and 6.28 basis points for BIF and SAIF,
respectively, in the first quarter of 1998, to 1.164 and 5.82 basis points
in the last quarter of 1998. These assessment rates are 1.22 basis points
for BIF, and 6.10 basis points for SAIF, in the first quarter of 1999.
Community Development Act
The Community Development Act has several titles. Title I provides for the
establishment of community development financial institutions to provide
equity investments, loans and development services to financially
underserved communities. A portion of this Title also contains various
provisions regarding reverse mortgages, consumer protections for qualifying
mortgages and hearings for home equity lending, among other things. Title
II provides for small business loan securitization and securitizations of
other loans, including authorizing a study on the impact of additional
securities based on pooled obligations. Small business capital enhancement
is also provided. Title III of the Act provides for paperwork reduction and
regulatory improvement, including certain examination and call report
issues, as well as changes in certain consumer compliance requirements,
certain audit requirements and real estate appraisals, and simplification
and expediting processing of bank holding company applications, merger
applications and securities filings, among other things. It also provides
for commercial mortgage-related securities to be added to the definition of
a "mortgage-related security" in the Exchange Act. This will permit
commercial mortgages to be pooled and securitized, and permit investment in
such instruments without limitation by insured depository institutions. It
also pre-empts state legal investment and blue sky laws related to
qualifying commercial mortgage securities. Title IV deals with money
laundering and currency transaction reports, and Title V reforms the
national flood insurance laws and requirements. The nature, timing, and
effect upon the Company of any changes resulting from the Community
Development Act cannot be predicted.
Legislative and Regulatory Changes
Various changes have been proposed with respect to restructuring and
changing the regulation of the financial services industry. FIRREA required
a study of the deposit insurance system. On February 5, 1991, the
Department of the Treasury released "Modernizing the Financial System;
Recommendations for Safer, More Competitive Banks". Among other matters,
this study analyzed and made recommendations regarding reduced bank
competitiveness and financial strength, overextension of deposit insurance,
the fragmented regulatory system and the under- capitalized deposit
insurance fund. It proposed restoring competitiveness by allowing banking
organizations to participate in a full range of financial services outside
of insured commercial banks. Deposit insurance coverage would be narrowed
to promote market discipline.
The Interstate Banking Act also directed the Secretary of the Treasury to
take a broad look at the strengths and weaknesses of the United States'
financial services system. In June 1997, the Treasury Department proposed
legislation to eliminate what it deemed outmoded barriers to competition
among financial services providers. On November 17, 1997, the United States
Department of the Treasury released its study "American Finance for the
21st Century" which considered changes in the financial services industry
during the next 10 years and beyond and reviewed the adequacy of existing
statutes and legislation.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and
bank and bank holding company powers are being considered by the executive
branch of the Federal government, Congress and various state governments,
including Florida. Among other items under consideration are the possible
combination of the BIF and SAIF, changes in or repeal of the Glass-Steagall
Act which separates commercial banking from investment banking, and changes
in the BHC Act to broaden the powers of "financial services" companies to
own and control depository institutions and engage in activities not
closely related to banking. The FDIC is considering possibly adding risk
measures in determining deposit insurance assessments. Certain of these
proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. It cannot be predicted whether any of
these proposals will be adopted, and, if adopted, how these proposals will
affect the Company and the Bank. In a case presented to the United States
Supreme Court in 1996, the Court permitted bank affiliates to conduct
insurance agency activities in the State of Florida.
New Accounting Pronouncements
In June 1997, the FASB issued Statements of Financial Accounting Standards
Number 130, Comprehensive Income ("SFAS 130"), and Number 131, Disclosures
about Segments of an Enterprise ("SFAS 131"). The Company adopted the
applicable standards and disclosures of these statements in 1998. SFAS 130
established standards for reporting comprehensive income and SFAS 131
established standards for reporting information about operating segments.
The FASB has also issued Statement of Financial Accounting Standard Number
133, Accounting for Derivative Instruments and for Hedging Activities (SFAS
133). The Company is required to adopt this statement in the future.
Management does not believe the adoption of SFAS 133 will have a
significant impact on the Company's financial statements or related
disclosures.
The Year 2000 Issue
Because computers frequently use only two digits to recognize years, on
January 1, 2000, many computer systems, as well as equipment that uses
embedded computer chips, may be unable to distinguish between 1900 and
2000. If not remediated, this problem could create system errors and
failures resulting in the disruption of normal business operations. Since
the Year 2000 is a leap year, there could also be business disruptions as a
result of the inability of many computer systems to recognize February 29,
2000.
In 1997 the Company established a project team to address these issues. The
team remains in place and continues to work on solving problems related to
the Year 2000. Personnel from the Company's business segments and the
project team are identifying, analyzing, correcting and testing components
of the Company's information technology ("IT"). Personnel are also taking
inventory of equipment that uses embedded computer chip (i.e.,
"non-information technology systems" or "Infrastructure") and scheduling
remediation or replacement of this Infrastructure, as necessary. Examples
of Infrastructure include ATMs, building security systems, fire alarm
systems, identification and access cards, date stamps and elevators.
The Company's Year 2000 efforts have been divided into phases for analysis,
remediation, testing, validation and implementation. In the analysis phase,
the Company identifies IT and Infrastructure that have Year 2000 issues and
determines the steps necessary to remediate these issues. In the
remediation phase, the Company replaces, modifies or retires IT or
Infrastructure, as necessary. During the testing phase, the Company
performs testing to ensure that the remediated IT and Infrastructure
accurately process and identify dates. In the validation phase, the Company
internally certifies the IT and Infrastructure that are Year 2000 compliant
and implements processes to ensure that the compliant IT and Infrastructure
will continue to identify and process dates accurately through the Year
2000 and thereafter.
As of year end, the analysis and remediation phase was substantially
complete, the testing phase was approximately 90% complete and validation
phase was approximately 25% complete. The Company expects to substantially
complete all phases by June 30, 1999, in accordance with guidelines
established by the Federal Financial Institutions Examination Council
(FFIEC).
The Company currently estimates the total cost of the Year 2000 project
will not exceed $750,000. A significant portion of the foregoing cost
constitutes a reallocation of existing internal systems technology
resources and, accordingly, is funded from normal operations.
Factors that may cause these costs to differ from estimates include
uncertainties relating to the Company's efforts to prepare its technology
systems non-information technology systems (IT) for the Year 2000, as well
as uncertainties relating to the ability of third parties with whom the
Company has business relationships to address the Year 2000 issue in a
timely and adequate manner. The Company is also exposed to the potential of
losses arising from adverse changes in market rates and prices which can
adversely impact the value of financial products, including securities,
loans, deposits, debt and derivative financial instruments, such as
futures, forwards, swaps, options and other financial instruments which
similar characteristics.
The Company has existing business continuity plans that address its
response to disruptions to business due to natural disasters, civil unrest,
utility outages or other occurrences. The Company is developing business
continuity plans specific to Year 2000 issues that are based on these
existing plans. The Company has made substantial progress on an inventory
and assessment of the existing business contingency plans. Supplements to
the existing plans to address Year 2000 issues are in various stages of
development and will include detailed plans to respond to these events. The
Company intends to complete these supplemental business continuity plans by
April 30, 1999. During the remainder of 1999, the business continuity plans
will be tested and validated with particular attention to event management
and communication processes.
Likewise, the Company has reviewed contingency plans developed by its
outsourced core processing vendor, M&I, relating to business interruptions
that could impact the core processing system. While these plans appear
adequate and are intended to be refined further in early 1999, there can be
no assurance that such plans will adequately mitigate material impacts that
these interruptions could have on the Company. Moreover, while the Company
has undertaken substantial effort to monitor M&I's progress to remediate
and reduce its Year 2000 exposure, the Company is dependent upon M&I to
adequately manage its own resources to minimize that exposure.
Although the Company's remediation efforts are directed at reducing its
Year 2000 exposure, there can be no assurance that these efforts will fully
mitigate the effect of Year 2000 issues. In the event the Company fails to
identify or correct a material Year 2000 problem, there could be
disruptions in normal business operations, which could have a material
adverse effect on the Company's results of operations, liquidity or
financial condition. In addition, there can be no assurance that
significant domestic third parties will adequately address their Year 2000
issues. Further, there may be some such parties, such as governmental
agencies, utilities, telecommunication companies, financial services
vendors and other providers, where alternative arrangements or resources
are not available.
In addition to the foregoing, the Company is subject to credit risk to the
extent borrowers fail to adequately address Year 2000 issues, to fiduciary
risk to the extent fiduciary assets fail to adequately address Year 2000
issues, and to liquidity risk to the extent of deposit withdrawals and to
the extent its lenders are unable to provide the Company with funds due to
Year 2000 issues. Although it is not possible to quantify the potential
impact of these risks at this time, in future years, there may be increases
in problem loans, credit losses, losses in the fiduciary business and
liquidity problems, as well as the risk of litigation and potential losses
from litigation related to the foregoing.
In addition, see "The Year 2000 Issue" included in the shareholders annual
report on pages 22 and 23.
Statistical Information
Certain statistical information (as required by Guide 3) is included in
response to Item 7 of this Annual Report on Form 10- K. Certain statistical
information is included in response to Item 6 and Item 8 of this Annual
Report on Form 10-K.
Item 2. Properties
Seacoast and the Bank's main office occupy approximately 62,000 square feet
of a 68,000 square foot building in Stuart, Florida. The building, together
with an adjacent 10-lane drive-in banking facility and an additional 27,000
square foot office building, are situated on approximately eight acres of
land in the center of Stuart zoned for commercial use. The building and
land are owned by the Bank, which leases out portions of the building not
utilized by Seacoast and the Bank to unaffiliated parties.
Adjacent to the main office, the Bank leases approximately 21,400 square
feet of office space to house operational departments, primarily
information systems and retail support. The Bank owns its equipment which
is used for servicing bank deposits and loan accounts as well as on-line
banking services, providing tellers and other customer service personnel
with access to customers' records.
As of December 31, 1998, the net carrying value of branch offices
(excluding the main office) was approximately $9.4 million. Seacoast's
branch offices are described as follows:
Jensen Beach, opened in 1977, is a free-standing facility located in the
commercial district of a residential community contiguous to Stuart. The
1,920 square foot bank building and land are owned by the Bank.
Improvements include three drive-in teller lanes and one drive-up ATM as
well as a parking lot and landscaping.
East Ocean Boulevard, opened at its original location in 1978, was a 2,400
square foot building leased by the Bank. The acquisition of American Bank
provided an opportunity for the Bank to move to a new location in April
1995. It is still located on the main thoroughfare between downtown Stuart
and Hutchinson Island's beach-front residential developments. The first
three floors of a four story office condominium were acquired in the
acquisition. The 2,300 square foot branch area on the first floor has been
remodeled and operates as a full service branch including five drive-in
lanes and a drive-up ATM. The remaining 2,300 square feet on the ground
floor was sold in June 1996, the third floor was sold in December 1995, and
the second floor in December 1998.
Cove Road, opened in late 1983, is conveniently located close to housing
developments in the residential areas south of Stuart known as Port Salerno
and Hobe Sound. South Branch Building, Inc., a subsidiary of the Bank, is a
general partner in a partnership which entered into a long term land lease
for approximately four acres of property on which it constructed a 7,500
square foot building. The Bank leases the building and utilizes 3,450
square feet of the available space. The balance is sublet by the Bank to
other business tenants. The Bank has improved its premises with three
drive-in lanes, bank equipment, and furniture and fixtures, all of which
are owned by the Bank. A drive-up ATM was added in early 1997.
Hutchinson Island, opened on December 31, 1984, is in a shopping center
located on a coastal barrier island, close to numerous oceanfront
condominium developments. In 1993, the branch was expanded from 2,800
square feet to 4,000 square feet and is under a long term lease to the
Bank. The Bank has improved the premises with bank equipment, a walk-up ATM
and three drive-in lanes, all owned by the Bank.
Rivergate originally opened October 28, 1985 and occupied 1,700 square feet
of leased space in the Rivergate Shopping Center, Port St. Lucie, Florida.
The Bank moved to larger facilities in the shopping center in April of 1999
under a long term lease agreement. Furniture and bank equipment located in
the prior facilities were moved to the new facility which occupies
approximately 3,400 square feet, with three drive-in lanes and a drive-up
ATM.
Northport was acquired on June 28, 1986 from Citizens Federal Savings &
Loan Association of Miami. This property consists of a storefront under
long term lease in the St. Lucie Plaza Shopping Center, Port St. Lucie, of
approximately 4,000 square feet. This office was closed March 31, 1994 and
the property is presently utilized by local community groups for meetings.
Wedgewood Commons, opened in April 1988, is located on an out parcel under
long term lease in the Wedgewood Commons Shopping Center, south of Stuart
on U.S. Highway 1. The property consists of a 2,800 square foot building
which houses four drive-in lanes, a walk-up ATM and various bank equipment,
all of which are owned by the Bank and are located on the leased property.
Bayshore, opened on September 27, 1990, occupies 3,520 square feet of a
50,000 square foot shopping center located in Port St. Lucie. The Bank has
leased the premises under a long term lease agreement and has made
improvements to the premises, including the addition of three drive-in
lanes and a walk-up ATM, all of which are owned by the Bank. A second
location, acquired in the merger with PSHC, and in close proximity to this
location, was closed on June 1, 1997 and subsequently sold in September
1997.
Hobe Sound, acquired from the RTC on December 23, 1991, is a two story
facility containing 8,000 square feet and is centrally located in Hobe
Sound. Improvements include two drive-in teller lanes, a drive-up ATM, and
equipment and furniture, all of which are owned by the Bank.
Fort Pierce, acquired from the RTC on December 23, 1991, is a 2,895 square
foot facility located in the heart of Fort Pierce and has three drive-in
lanes and a drive-up ATM. Equipment and furniture are all owned by the
Bank.
Martin Downs, purchased from the RTC in February 1992, is a 3,960 square
foot bank building located at a high traffic intersection in Palm City, an
emerging commercial and residential community west of Stuart. Improvements
include three drive-in teller lanes, a drive-up ATM, equipment and
furniture.
Tiffany, purchased from the RTC in May 1992, is a two story facility which
contains 8,250 square feet and is located on a corner of U.S. Highway One
in Port St. Lucie offering excellent exposure in one of the fastest growing
residential areas in the region. The second story which contains 4,250
square feet is leased to tenants. Three drive-in teller lanes, a walk-up
ATM, equipment and furniture are utilized and owned by the Bank.
Vero Beach, purchased from the RTC in February 1993, is a 3,300 square foot
bank building located in Vero beach on U.S. Highway One and represents the
Bank's initial presence in this Indian River County market. A leasehold
interest in a long term land lease was acquired. Improvements include three
drive-in teller lanes, a walk-up ATM, equipment and furniture, all of which
are owned by the Bank.
Beachland, opened in February 1993, consists of 4,150 square feet of leased
space located in a three-story commercial building on Beachland Boulevard,
the main beachfront thoroughfare in Vero Beach, Florida. An additional
1,050 square feet were leased during 1996. This facility has 2 drive-in
teller lanes, a drive-up ATM, and furniture and equipment, all owned by the
Bank.
Sandhill Cove, opened in September 1993, is in an upscale life-care
retirement community. The 135 square foot office is located within the
community facilities which are located on a 36-acre development in Palm
City, Florida. This community contains approximately 168 private
residences.
St. Lucie West, opened in November 1994, was in a 3,600 square foot
building located at 1320 S.W. St. Lucie Blvd, Port St. Lucie. As a result
of the PSHC acquisition, this facility was closed in June 1997 and the
property was sold in September 1997. On June 1, 1997, the Bank moved its
St. Lucie West operations to the Renar Centre (previously occupied by
PSHC). The Bank leases 4,320 square feet on the first floor of this
facility and 2,468 square feet on the second floor. The facility includes
three drive-in teller lanes, a drive-up ATM, and furniture and equipment.
Mariner Square, acquired from American Bank in April 1995, is a 3,600
square foot leased space located on the ground floor of a three story
office building located on U.S.Highway 1 between Hobe Sound and Port
Salerno. Approximately 700 square feet of the space is sublet to a tenant.
The space occupied by the Bank has been improved to be a full service
branch with two drive-in lanes, one serving as a drive-up ATM lane as well
as a drive-in teller lane, all owned by the Bank.
Sebastian, opened in May 1996, is located within a 174,000 square foot
WalMart Superstore on U.S. 1 in northern Indian River County. The leased
space occupied by the Bank totals 865 square feet. The facility has a
walk-up ATM, owned by the Bank.
Nettles Island was opened in January 1997 in southern St. Lucie County on
Hutchinson Island. It occupies 350 square feet of leased space in a
predominantly modular home community. Furniture and equipment are owned. No
ATM or drive-in lanes are offered.
U.S. 1 and Port St. Lucie Boulevard office opened as a Bank location on
June 1, 1997, upon the merger with PSHC. At the date of the merger, the
leased space consisted of 5,188 square feet on the first floor and 1,200
square feet on the second floor. In October 1997, 1,800 square feet of the
leased space on the first floor and 1,200 square feet of leased space on
the second floor were assigned to another tenant. The present space leased
by the Bank totals 3,388 square feet. The facility has two drive-in lanes,
a walk-up ATM, and furniture and equipment, all owned by the Bank.
South Vero Square opened in May 1997 in a 3,150 square foot building owned
by the Bank on South U.S. 1 in Vero Beach. The facility includes three
drive-in teller lanes, a drive-up ATM, and furniture and equipment, all
owned by the Bank.
Oak Point opened in June 1997. It occupies 12,000 square feet of leased
space on the first and second floor of a 19,700 square foot 3-story
building in Indian River County. The office is in close proximity to Indian
River Memorial Hospital and the peripheral medical community adjacent to
the hospital. The facility includes three drive-in teller lanes, a walk-up
ATM, and furniture and equipment, all owned by the Bank. Approximately
2,000 square feet of the second floor is sublet to tenants.
Route 60 Vero opened in July 1997. Similar to the Sebastian office, this
facility is housed in a WalMart Superstore in western Vero Beach in Indian
River County. The branch occupies 750 square feet of leased space and
includes a walk-up ATM.
Sebastian West opened in March 1998 in a 3,150 square foot building owned
by the Bank. It is located at the intersection of Fellsmere Road and
Roseland Road in Sebastian. The facility includes three drive-in teller
lanes, a drive-up ATM, and furniture and equipment, all owned by the Bank.
For additional information, refer to Notes F and I of the Notes to
Consolidated Financial Statements in the 1998 Annual Report of Seacoast
incorporated herein by reference pursuant to Item 8 of this document.
Item 3. Legal Proceedings
The Company and its subsidiaries, because of the nature of their business,
are at times subject to numerous legal actions, threatened or filed, in the
normal course of their business. Although the amount of any ultimate
liability with respect to such matters cannot be determined, in the opinion
of management, after consultation with legal counsel, those claims and
lawsuits, when resolved, should not have a material adverse effect on the
consolidated results of operation or financial condition of Seacoast and
its subsidiaries.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Part II
-------
Item 5 Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters
The Class A Common Stock is traded in the over the counter market and
quoted on the Nasdaq National Market System ("Nasdaq Stock Market"). There
is no established public trading market for the Class B Common Stock of
Seacoast. As of February 12, 1999, there were approximately 1,025 record
holders of the Class A Common Stock and 86 record holders of the Class B
Common Stock.
Seacoast Class A Stock is traded in the over-the-counter market and is
quoted on the Nasdaq Stock Market under the symbol "SBCFA". The following
table sets forth the high, low and last sale prices per share of Seacoast
Class A Stock on the Nasdaq Stock Market and the dividends paid per share
of Seacoast Class A Stock for the indicated periods.
Sale Price Per Annual Dividends
Share of Seacoast Declared Per Share
Class A Stock of Seacoast Class
A Stock
High Low
1998
First Quarter . . . . . $38.50 $34.00 $0.22
Second Quarter. . . . . 39.50 35.75 0.22
Third Quarter. . . . . 40.00 29.75 0.22
Fourth Quarter. . . . . 29.00 23.00 0.24
1997
First Quarter................. $29.50 $25.625 $0.20
Second Quarter................ 30.50 24.625 0.20
Third Quarter................. 38.50 29.75 0.20
Fourth Quarter................ 39.50 34.25 0.22
Seacoast's Articles of Incorporation prohibit the declaration or payment of
cash dividends on Class B Common Stock unless cash dividends are declared
or paid on Class A Common Stock in an amount equal to at least 110% of any
cash dividend on Class B Common Stock. Dividends on Class A Common Stock
payable in shares of Class A Common Stock shall be paid to holders of Class
A Common and Class B Common Stock at the same time and on the same basis.
In 1996, cash dividends of $.65 per share of Class A Common Stock and $.585
per share of Class B Common Stock were paid. In 1997, cash dividends of
$.82 per share of Class A Common Stock and $.74 per share of Class B Common
Stock were paid. In 1998, cash dividends of $.90 per share of Class A
Common Stock and $.818 per share of Class B Common Stock were paid.
Dividends from the Bank are Seacoast's primary source of funds to pay
dividends on Seacoast capital stock. Under the National Bank Act, the Bank
may in any calendar year, without the approval of the OCC, pay dividends to
the extent of net profits for that year, plus retained net profits for the
preceding two years (less any required transfers to surplus). The need to
maintain adequate capital in the Bank also limits dividends that may be
paid to Seacoast. Information regarding a restriction on the ability of the
Bank to pay dividends to Seacoast is contained in Note B of the "Notes to
Consolidated Financial Statements" contained in Item 8 hereof. See
"Supervision and Regulation" contained in Item 1 of this document.
The OCC and Federal Reserve have the general authority to limit the
dividends paid by insured banks and bank holding companies, respectively,
if such payment may be deemed to constitute an unsafe or unsound practice.
If, in the particular circumstances, the OCC determines that the payment of
dividends would constitute an unsafe or unsound banking practice, the OCC
may, among other things, issue a cease and desist order prohibiting the
payment of dividends. This rule is not expected to adversely affect the
Bank's ability to pay dividends to Seacoast. See "Supervision and
Regulation" contained in Item 1 of this document.
Each share of Class B Common Stock is convertible by its holder into one
share of Class A Common Stock at any time prior to a vote of shareholders
authorizing a liquidation of Seacoast.
Item 6 Selected Financial Data
Selected financial data is incorporated herein by reference under the
caption "Financial Highlights" on page 4 of the 1998 Annual Report. See
Exhibit 13.
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the caption "Financial Review - 1998 Management's
Discussion and Analysis", on pages 14 through 26 of the 1998 Annual Report
is incorporated herein by reference. See Exhibit 13.
Item 7A. Market Risk
Market risk reflects the risk of economic loss resulting from adverse
changes in market prices and interest rates. This risk of loss can be
reflected in either diminished current market values or reduced potential
net income in future periods.
The Company market risk arises from interest rate risk inherent in its
lending and deposit taking activities. The structure of the Company's loan
and deposit portfolios is such that a significant decline in the primary
rate may adversely effect net market values and interest income. Management
seeks to manage this risk through the utilization of various tools,
including the pricing and maturities of its assets and liabilities,
including its investments. The composition and size of the investment
portfolio is managed so as to reduce the interest rate risk in the deposit
and loan portfolios. Currently, the Company does not use any off-balance
sheet derivatives. See the "Interest Rate Sensitivity" section of the
Annual Report for further information regarding the risk associated with
changes in interest rates.
Item 8 Financial Statements and Supplementary Data
The report of Arthur Andersen LLP, independent certified public
accountants, and the consolidated financial statements are included on
pages 31 through 45 of the 1998 Annual Report and are incorporated herein
by reference. "Selected Quarterly Information - Consolidated Quarterly
Average Balances, Yields & Rates" and Quarterly Consolidated Income
Statements" included on pages 27 through 29 of the 1998 Annual Report are
incorporated herein by reference. See Exhibit 13.
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
Information concerning the directors and executive officers of Seacoast is
set forth under the headings "Proposal One - Election of Directors",
"Information About the Board of Directors and its Committees" and
"Executive Officers" on pages 2 through 8 in the 1999 Proxy Statement and
is incorporated herein by reference.
Item 11. Executive Compensation
Information set forth under the headings "Proposal One - Election of
Directors - Compensation of Executive Officers", "Salary and Benefits
Committee Report", "Summary Compensation Table", "Grants of Options/SARs in
1998", "Aggregated Options/SAR Exercises in 1998 and 1998 Year-End
Option/SAR Values", "Profit Sharing Plan", "Performance Graph", and
"Employment and Severance Agreements" on pages 9 through 17 of the 1999
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information set forth under the headings, "Proposal One Election of
Directors - General" on pages 2 through 7, "Proposal One - Election of
Directors - Management Stock Ownership" on page 8, and "Principal
Shareholders" on page 18 to 19 in the 1999 Proxy Statement, relating to the
number of shares of Class A Common Stock and Class B Common Stock
beneficially owned by the directors of Seacoast, all such directors and
officers as a group and certain beneficial owners is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information set forth under the heading "Proposal One - Election of
Directors - Salary and Benefits Committee Interlocks and Insider
Participation" and "Certain Transactions and Business Relationships" on
page 17 through 18 of the 1999 Proxy Statement is incorporated herein by
reference.
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
a)(1) List of all financial statements
The following consolidated financial statements and report of independent
certified public accountants of Seacoast, included in the 1998 Annual
Report are incorporated by reference into Item 8 of this Annual Report on
Form 10-K.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
a)(2) List of Financial Statement Schedules
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
a)(3) Listing of Exhibits
The following Exhibits are filed as part of this report in Item 14 (c):
Exhibit 3.1 Amended and Restated Articles of Incorporation
----------------------------------------------------------
Incorporated herein by reference from registrant's Current Report on Form
8-K, File No. 0-13660, dated June 6, 1997
Exhibit 3.2 Amended and Restated By-laws of the Corporation
---------------------------------------------------------------
Incorporated herein by reference from Exhibit 3.2 of Registrant's Current
Report on Form 8-K, File No. 0-13660, dated June 6, 1997
Exhibit 4.1 Specimen Class A Common Stock Certificate
-----------------------------------------------------
Incorporated herein by reference from Exhibit 4.1 of the
Registrant's Registration Statement on Form S-1, File No. 2-88829
Exhibit 4.2 Specimen Class B Common Stock Certificate
-----------------------------------------------------
Incorporated herein by reference from Exhibit 4.2 of registrant's
Registration Statement on Form S-1, File No. 2-88829
Exhibit 10.1 Profit Sharing Plan, as amended
--------------------------------------------
Incorporated herein by reference from registrants' Registration Statement
on Form S-8, File No. 33-22846, dated July 18, 1988, and as amended, from
Exhibit 10.1 of registrant's Annual Reports on Form 10-K, dated March 27,
1998.
Exhibit 10.2 Employee Stock Purchase Plan
-----------------------------------------
Incorporated herein by reference from registrant's Registration
Statement on Form S-8 File No. 33-25627, dated November 18, 1988
Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan
----------------------------------------- ----- -------------
Incorporated herein by reference from registrant's Annual Reports on Form
10-K, dated March 29, 1991
Exhibit 10.4 Executive Employment Agreement
---------------------- ---------- ---------
Dated March 22, 1991 between A. Douglas Gilbert and the Bank, incorporated
herein by reference from registrant's Annual Reports on Form 10-K, dated
March 29, 1991
Exhibit 10.5 Executive Employment Agreement
---------------------------------------------
Dated January 18, 1994 between Dennis S. Hudson, III and the Bank,
incorporated herein by reference from registrant's Annual Reports on Form
10-K, dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement
--------------------------------------------
Dated July 31, 1995 between C. William Curtis, Jr. and the Bank,
incorporated herein by reference from registrant's Annual Reports
on Form 10-K, dated March 28, 1996.
Exhibit 10.8 1991 Stock Option & Stock Appreciation Rights Plan
----------------------------------------------------------------
Incorporated herein by reference from registrant's Registration Statement
on Form S-8 File No. 33-61925, dated August 18, 1995.
Exhibit 10.9 1996 Long Term Incentive Plan
--------------------------------------------
Incorporated herein by reference from registrant's 1996 Proxy Statement,
dated March 21, 1996
Exhibit 10.10 Non-Employee Director Stock Compensation Plan
-----------------------------------------------------------
Incorporated herein by reference from registrant's 1996 Registration
Statement on Form S-8 File No. 333-70399 dated January 11, 1999
Exhibit 13 1998 Annual Report
------------------------------
The following portions of the 1998 Annual Report are incorporated herein by
reference:
Financial Highlights
Financial Review - Management's Discussion and Analysis
Selected Quarterly Information - Quarterly Consolidated Income Statements
Selected Quarterly Information - Consolidated Quarterly
Average Balances, Yields & Rates
Financial Statements
Notes to Consolidated Financial Statements
Financial Statements - Report of Independent Certified
Public Accountants
Exhibit 21 Subsidiaries of Registrant
--------------------------------------
Incorporated herein by reference from Exhibit 22 of Registrant's Annual
Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 23 Consent of Independent Certified Public Accountants
---------------------------------------------------------------
Exhibit 27 Financial Data Schedule (for SEC use only)
------------------------------------------------------
b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1998.
c) Exhibits
The response to this portion of Item 14 is submitted as a separate section of
this report.
d) Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stuart,
State of Florida, on the 29th day of March, 1999.
SEACOAST BANKING CORPORATION OF FLORIDA
(Registrant)
By: /s/ Dennis S. Hudson, III
--------------------------
Dennis S. Hudson, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date
/s/ Dale M. Hudson March 29, 1999
- ------------------
Dale M. Hudson, Chairman of the Board
and Director
/s/ Dennis S. Hudson, III March 29, 1999
- -------------------------
Dennis S. Hudson, III, President,
Chief Executive Officer and Director
/s/ William R. Hahl March 29, 1999
- -------------------
William R. Hahl, Executive Vice President and
Chief Financial Officer
_____________________________________________ March 29, 1999
Jeffrey C. Bruner, Director
/s/ John H. Crane March 29, 1999
- -----------------
John H. Crane, Director
/s/ Evans Crary, Jr. March 29, 1999
- --------------------
Evans Crary, Jr., Director
_____________________________________________ March 29, 1999
Christopher E. Fogal, Director
_____________________________________________ March 29, 1999
Jeffrey S. Furst, Director
/s/ Dennis S. Hudson, Jr. March 29, 1999
- -------------------------
Dennis S. Hudson, Jr., Director
_____________________________________________ March 29, 1999
John R. Santarsiero, Jr., Director
/s/ Thomas H. Thurlow, Jr. March 29, 1999
- --------------------------
Thomas H. Thurlow, Jr., Director