ITEM 1. BUSINESS
General
Seacoast Banking Corporation of Florida ("Seacoast") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("BHC Act"). Seacoast was incorporated under the laws of the State of Florida on January 24, 1983, by the management of its principal subsidiary, First National Bank and Trust Company of the Treasure Coast ("Bank") for the purpose of forming a holding company for the Bank. On December 30, 1983, Seacoast acquired all of the outstanding shares of the common stock of the Bank in exchange for 810,000 shares of its $.10 par value Class A common stock ("Class A Common Stock") and 810,000 shares of its $.10 par value Class B common stock ("Class B Common Stock").
The Bank commenced operations in 1933 under the name "Citizens Bank of Stuart" pursuant to a charter originally granted by the State of Florida in 1926. The Bank converted to a national banking association on August 29, 1958.
Through the Bank and its broker-dealer subsidiary, Seacoast offers a full array of deposit accounts and retail banking services, engages in consumer and commercial lending and provides a wide variety of trust and asset management services, as well as securities and annuity products. Seacoast's primary service area is the "Treasure Coast", which, as defined by Seacoast, consists of the counties of Martin, St. Lucie and Indian River on Florida's southeastern coast. The Bank operates banking offices in the following cities: five in Stuart, two in Palm City, one in Jensen Beach, two on Hutchinson Island, one in Hobe Sound, two in Vero Beach, one in Sebastian, four in Port St. Lucie, and one in Ft. Pierce.
Most of the banking offices have one or more Automatic Teller Machines (ATMs) which provide customers with 24-hour access to their deposit accounts. Seacoast is a member of two state-wide funds transfer systems known as the "HONOR System" and the "Presto System", which permit banking customers access to their accounts at over 21,800 locations in eighteen states in the Southeast. The HONOR System also permits the Bank's customers access to their accounts via other systems outside the State of Florida.
Customers can also use the Bank's "MoneyPhone" system to access information on their loan and deposit account balances, and to transfer funds between linked accounts, make loan payments, as well as to verify deposits or checks that may have cleared. This service is accessible by phone 24-hours a day, seven days a week.
In addition, customers may access information via the Bank's Telephone Banking Center ("TBC"). From 7 A.M. to 7 P.M., servicing personnel in the TBC are available to open accounts, take applications for certain types of loans, resolve account problems and offer information on other bank products and services to existing and potential customers. The Company recently began offering PC banking for personal computers.
Seacoast has three indirect subsidiaries. FNB Brokerage Services, Inc. ("FNB Brokerage") provides brokerage services. South Branch Building, Inc. is a general partner in a partnership which constructed a branch facility. Big O RV Resort, Inc. was formed to own and operate certain properties acquired through foreclosure, however it is currently inactive. The operations of these subsidiaries contribute less than 10% of the consolidated assets and revenues of Seacoast.
As a bank holding company, Seacoast is a legal entity separate and distinct from its subsidiaries. Seacoast coordinates the financial resources of the consolidated enterprise and maintains financial, operational and administrative systems that allow centralized evaluation of subsidiary operations and coordination of selected policies and activities. Seacoast's operating revenues and net income are derived primarily from its subsidiaries through dividends, fees for services performed and interest on advances and loans.
As of December 31, 1996, Seacoast and its subsidiaries employed 335 full-time equivalent employees.
Expansion of Business
Seacoast has expanded its products and services to meet the changing needs of the various segments of its market and it expects to continue this strategy. Prior to 1991, Seacoast had expanded geographically by adding branches, including the acquisition of a thrift branch in St. Lucie County.
Seacoast from time to time considers acquisitions of other depository institutions or corporations engaged in bank-related activities. On September 20, 1991, the Bank acquired from the Resolution Trust Corporation ("RTC") 10 branches and approximately $110 million of deposits of a failed thrift, American Pioneer Federal Savings Bank ("American Pioneer"), for a deposit premium of $752,000 (of which $313,000 remains outstanding as an intangible asset at December 31, 1996). Following the acquisition, the Bank temporarily rented all the branch facilities from the RTC at commercially reasonable rates to preserve existing customer relationships and to facilitate their transfer to the Bank. On October 18, 1991, the Bank ceased renting the branch office facilities it did not intend to acquire to avoid duplication of existing facilities. After negotiation, definitive agreements with the RTC were executed for the purchase of five branch facilities. See "Item 2.

ITEM 2. PROPERTIES
Seacoast and the Bank's main office occupy approximately 62,000 square feet of a 68,000 square foot building in Stuart, Florida. The building, together with an adjacent 10-lane drive-in banking facility and an additional 27,000 square foot office building, are situated on approximately eight acres of land in the center of Stuart zoned for commercial use. The building and land are owned by the Bank, which leases out portions of the building not utilized by Seacoast and the Bank to unaffiliated parties.
Adjacent to the main office, the Bank leases approximately 21,400 square feet of office space to house operational departments, primarily information systems and retail support. The Bank owns its data processing equipment which is used for servicing bank deposits and loan accounts as well as on-line banking services, providing tellers and other customer service personnel with access to customers' records.
As of December 31, 1996, the net carrying value of branch offices (excluding the main office) was approximately $7.7 million. Seacoast's branch offices are described as follows:
Jensen Beach, opened in 1977, is a free-standing facility located in the commercial district of a residential community contiguous to Stuart. The 1,920 square foot bank building and land are owned by the Bank. Improvements include three drive-in teller lanes and one drive-up ATM as well as a parking lot and landscaping.
East Ocean Boulevard, opened at it's original location in 1978 in a 2,400 square foot building leased to the Bank. It is still located on the main thoroughfare between downtown Stuart and Hutchinson Island's beach-front residential developments. The acquisition of American Bank provided an opportunity for the Bank to move to a new location in April 1995. The first three floors of a four story office condominium were acquired in the acquisition. The 2,300 square foot branch area on the first floor has been remodeled and operates as a full service branch including five drive-in lanes and a drive-up ATM. The remaining 2,300 square feet on the ground floor was sold in June 1996 and the third floor was sold in December 1995. All of the second floor has been leased to tenants.
Cove Road, opened in late 1983, is conveniently located to housing developments in the residential areas south of Stuart known as Port Salerno and Hobe Sound. The Bank's subsidiary is a general partner in a partnership which entered into a long term land lease for approximately four acres of property on which it constructed a 7,500 square foot building. The Bank leases the building and utilizes 3,450 square feet of the available space. The balance is sublet by the Bank to other business tenants. The Bank has improved its premises with three drive-in lanes, bank equipment, and furniture and fixtures, all of which are owned by the Bank. A drive-up ATM will be added by March 31, 1997.
Hutchinson Island, opened on December 31, 1984, is in a shopping center located on a coastal barrier island, close to numerous oceanfront condominium developments. In 1993, the branch was expanded from 2,800
square foot to 4,000 square feet and is under long term lease to the Bank. The Bank has improved the premises with bank equipment, a walk-up ATM and three drive-in lanes, all owned by the Bank.
Rivergate, opened October 28, 1985, in 1,700 square feet of leased space in the Rivergate Shopping Center, Port St. Lucie, Florida. The Bank also leased approximately 800 square feet of office space nearby, which served as administrative offices. Both of these offices were under short term leases which expired in 1988. The Bank moved to larger facilities in the Rivergate Shopping Center in April of 1988 under a long term lease agreement. Furniture and bank equipment located in the prior facility were moved to the new facility which has approximately 3,400 square feet, with three drive-in lanes and a drive-up ATM.
Northport was acquired on June 28, 1986 from Citizens Federal Savings & Loan Association of Miami. This property consists of a storefront under long term lease in the St. Lucie Plaza Shopping Center, Port St. Lucie, of approximately 4,000 square feet. This office was closed March 31, 1994 and the property is utilized for storage.
Wedgewood Commons, opened in April 1988, is located on an out parcel under long term lease in the Wedgewood Commons Shopping Center, south of Stuart on U.S. Highway 1. A 2,800 square foot building, four drive-in lanes, a walk- up ATM and bank equipment, all of which is owned by the Bank are located on the leased property.
Bayshore, opened on September 27, 1990, occupies 3,520 square feet of a 50,000 square foot shopping center located in Port St. Lucie. The Bank has leased the premises under a long term lease agreement and has made improvements to the premises, including three drive-in lanes and a walk-up ATM, all of which are owned by the Bank.
Hobe Sound, acquired from the Resolution Trust Corporation on December 23, 1991, is a two story facility containing 8,000 square feet and is centrally located in Hobe Sound. Improvements include two drive-in teller lanes, a drive-up ATM, and equipment and furniture, all of which are owned by the Bank.
Fort Pierce, acquired from the Resolution Trust Corporation on December 23, 1991, is a 2,895 square foot facility located in the heart of Fort Pierce and has three drive-in lanes and a drive-up ATM. Equipment and furniture are all owned by the Bank.
Martin Downs , purchased from the Resolution Trust Corporation in February 1992, is a 3,960 square foot bank building located at a high traffic intersection in Palm City, an emerging commercial and residential community west of Stuart. Improvements include three drive-in teller lanes, a drive-up ATM, equipment and furniture.
Tiffany, purchased from the Resolution Trust Corporation in May 1992, is a two story facility which contains 8,250 square feet and is located on a corner of U.S. Highway One in Port St. Lucie offering excellent exposure in one of the fastest growing residential areas in the region. The second story which contains 4,250 square feet is leased to tenants. Three drive-in teller lanes, a walk-up ATM, equipment and furniture are utilized and owned by the Bank.
Vero Beach, purchased from the Resolution Trust Corporation in February 1993, is a 3,300 square foot bank building located in Vero beach on U.S. Highway One and represents the Bank's initial presence in this Indian River County market. A leasehold interest in a long-term land lease was acquired. Improvements include three drive-in teller lanes, a walk-up ATM, equipment and furniture, all of which are owned by the Bank.
Beachland was opened in February 1993, in 4,150 square feet of leased space located in a three-story commercial building on Beachland Boulevard, the main beachfront thoroughfare, in Vero Beach, Florida. An additional 1,050 square feet was leased during 1996. This facility has 2 drive-in teller lanes, a drive-up ATM, furniture and equipment, all owned by the Bank.
Sandhill Cove, opened in September 1993, is in an upscale life-care retirement community. The 135 square foot office is located within the facility which is located on 36 acres in Palm City, Florida. This community will contain approximately 168 private residences.
St. Lucie West, opened in November 1994, is in a 3,600 square foot building located at 1320 S.W. St. Lucie Blvd, Port St. Lucie. This facility has three drive-in teller lanes and a drive-up ATM, all owned by the Bank.
Mariner Square, acquired from American Bank in April 1995, is a 3,600 square foot leased space located on the ground floor of a three story office building located on U.S.Highway 1 between Hobe Sound and Port Salerno. Approximately 700 square feet of the space is sublet to a tenant. The space occupied by the Bank has been improved to be a full service branch with two drive-in lanes, one serving as a drive-up ATM lane as well as a drive-in teller lane, all owned by the Bank.
Sebastian opened in May 1996 as an in-store branch within a 174,000 square foot WalMart Superstore located on U.S. 1 in northern Indian River County. The leased space occupied by the Bank totals 865 square feet. The facility has a walk-up ATM, owned by the Bank.
For additional information, refer to Notes F and I of the Notes to Consolidated Financial Statements in the 1996 Annual Report of Seacoast incorporated herein by reference pursuant to Item 8 of this document.
In 1997, four new branches, one in St. Lucie County and three in Indian River County, will open:
Nettles Island was opened in January 1997 in southern St. Lucie County on Hutchinson Island. It occupies 350 square feet of leased space in a predominantly modular home community. Furniture and equipment are owned. No ATM or drive-in lanes are offered.
South Vero Square is expected to open in April 1997 in a 3,150 square foot building owned by the Bank on South U.S. 1 in Vero Beach. The facility will include three drive-in teller lanes, a drive-up ATM, and furniture and equipment, all owned by the Bank.
Oak Point is anticipated to open in June 1997. It will occupy 9,000 square feet of leased space on the first and second floor of a 19,700 square foot 3-story building, presently under construction in Indian River County. The office will be in close proximity to Indian River Memorial Hospital and the peripheral medical community adjacent to the hospital. The facility includes three drive-in teller lanes, a walk-up ATM, and furniture and equipment, all owned by the Bank.
Route 60 Vero is scheduled to open in June 1997 as well. Similar to
the Sebastian office, this facility will be housed in a WalMart Superstore in western Vero Beach in Indian River County. The branch will occupy 750 square feet of leased space and will include a walk-up ATM.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company and its Subsidiaries, because of the nature of their business, are subject to various threatened and pending legal actions in the normal course of their business. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, after consultation with legal counsel, those claims and lawsuits, when resolved, should not have a material adverse effect on the consolidated results of operation or financial condition of Seacoast and its subsidiaries.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Class A Common Stock is traded in the over the counter market and quoted on the Nasdaq National Market System. There is no established public trading market for the Class B Common Stock of Seacoast. As of March 1, 1997, there were approximately ______ record holders of the Class A Common Stock and ______ record holders of the Class B Common Stock.
Seacoast Class A Stock is traded in the over-the-counter market and is quoted on the Nasdaq National Market ("Nasdaq National Market") under the symbol "SBCFA". The following table sets forth the high and low sale prices per share of Seacoast Class A Stock on the Nasdaq National Market and the dividends paid per share of Seacoast Class A Stock for the indicated periods.
Seacoast's Articles of Incorporation prohibit the declaration or payment of cash dividends on Class B Common Stock unless cash dividends are declared or paid on Class A Common Stock in an amount equal to at least 110% of any cash dividend on Class B Common Stock. Dividends on Class A Common Stock payable in shares of Class A Common Stock shall be paid to holders of Class A Common and Class B Common Stock at the same time and on the same basis.
In 1994, cash dividends of $.49 per share of Class A Common Stock and $.445 per share of Class B Common Stock were paid. In 1995, cash dividends of $.54 per share of Class A Common Stock and $.489 per share of Class B Common Stock were paid. In 1996, cash dividends of $.65 per share of Class A Common Stock and $.585 per share of Class B Common Stock were paid.
Dividends from the Bank are Seacoast's primary source of funds to pay dividends on Seacoast capital stock. Under the National Bank Act, the Bank may in any calendar year, without the approval of the OCC, pay dividends to the extent of net profits for that year, plus retained net profits for the preceding two years (less any required transfers to surplus). The need to maintain adequate capital in the Bank also limits dividends that may be paid to Seacoast. Information regarding a restriction on the ability of the Bank to pay dividends to Seacoast is contained in Note B of the "Notes to Consolidated Financial Statements" contained in Item 8 hereof. See also "Supervision and Regulation" contained in Item 1 of this document.
The OCC and Federal Reserve have the general authority to limit the dividends paid by insured banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice.
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.

ITEM 6. SELECTED FINANCIAL DATA
(1) Income before taxes excluding the provision for loan losses, securities gains and expenses associated with foreclosed and repossessed asset management and dispositions. (2) Includes $(1,482,000) in 1996, $(705,000) in 1995, $(4,391,000) in 1994 and $4,667,000 in 1993 related to adoption of Financial Accounting Standard Board No. 115 "Accounting for Certain Investments in Debt and Equity Securities". (3) On a fully taxable equivalent basis.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
1996 Management's Discussion and Analysis
The following discussion and analysis is designed to provide a better understanding of the significant factors related to the Company's results of operations and financial condition. Such discussion and analysis should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto in Item 8

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Certified Public Accountants
Board of Directors and Shareholders Seacoast Banking Corporation of Florida Stuart, Florida
We have audited the accompanying consolidated balance sheets of Seacoast Banking Corporation of Florida and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Seacoast Banking Corporation of Florida and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP Miami, Florida, January 16, 1997.
CONSOLIDATED STATEMENTS OF INCOME ================================================================================ Seacoast Banking Corporation of Florida and Subsidiaries
- -------------------------------------------------------------------------------- See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Seacoast Banking Corporation of Florida and Subsidiaries
- ------------------------------------------------------------------------ See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------ Seacoast Banking Corporation of Florida and Subsidiaries
- -------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity - -------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
================================================================================ See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity (cont'd) - -------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity (cont'd) - -------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Seacoast Banking Corporation of Florida and Subsidiaries
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
NATURE OF OPERATIONS: The Company is one bank holding company whose operations and locations are more fully described under the heading "Corporate Profile" and "Markets Served" on the inside of the front cover and on page 1 of this annual report.
USE OF ESTIMATES: The preparation of these financial statements required the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. Actual results could differ from those estimates.
SECURITIES: Securities that may be sold as part of the Company's asset/liability management or in response to, or in anticipation of changes in interest rates and resulting prepayment risk, or for other factors are stated at market value. Such securities are held for sale with unrealized gains of losses reflected as a component of Shareholders' Equity net of tax. Debt securities that the Company has the ability and intent to hold to maturity are carried at amortized cost. Interest income on securities, including amortization of premiums and accretion of discounts is recognized using the interest method.
The Company generally anticipates prepayments of principal in the calculation of the effective yield for collateralized mortgage obligations and mortgage backed securities. The adjusted cost of each specific security sold is used to compute gains or losses on the sale of securities.
OTHER REAL ESTATE OWNED: Other real estate owned consists of real estate acquired in lieu of unpaid loan balances. These assets are carried at an amount equal to the loan balance prior to foreclosure plus costs incurred for improvements to the property, but no more than the estimated fair value of the property.
BANK PREMISES AND EQUIPMENT: Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed principally by the straight line method, over the estimated useful lives as follows: building - 25-40 years, furniture and equipment - 4-12 years.
PURCHASE METHOD OF ACCOUNTING: Net assets of companies acquired in purchase transactions are recorded at fair value at date of acquisition. Core deposit intangibles are amortized on a straight line basis over estimated periods benefited, not exceeding 10 years. Goodwill is amortized on a straight line basis over 15 years.
MORTGAGE SERVICING RIGHTS: The Company adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights an Amendment of SFAS No. 65," as of January 1, 1996. The Company acquires mortgage servicing rights through the origination of mortgage loans, and the Company sells or securitizes those loans with servicing rights retained. Under Statement of Financial Accounting Standards No. 122, the Company allocates the total cost of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values.
The Company assesses its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The portfolio is stratified by two predominant risk characteristics: loan type and fixed versus variable interest rate. Impairment, if any, is recognized through a valuation allowance for each impaired stratum. Mortgage servicing rights are amortized in proportion to, and over the period of, the estimated net future servicing income.
For years prior to 1996, the Company had not purchased the rights to service loans and consequently, had not recognized mortgage servicing rights as an asset. The effect of adoption of this Statement in 1996 was not significant.
REVENUE RECOGNITION: Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest income is discontinued when a loan becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, interest credited to income in the current year is reversed and interest accrued in the prior year is charged to the allowance for loan losses.
Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest.
PROVISION FOR LOAN LOSSES: The provision for loan losses is management's judgement of the amount necessary to increase the allowance for loan losses to a level sufficient to cover losses in the collection of loans.
NET INCOME PER SHARE: Net income per share is based upon the weighted average number of shares of both Class A and Class B common stock and equivalents outstanding during the respective years.
CASH FLOW INFORMATION: For the purposes of the consolidated statements of cash flows, the Company considers cash and due from banks and federal funds sold as cash and cash equivalents.
NOTE B - CASH, DIVIDEND AND LOAN RESTRICTIONS
In the normal course of business, the Company and its subsidiary bank enter into agreements, or are subject to regulatory agreements, that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows:
The Company's subsidiary bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1996 was approximately $2,000,000.
Under Federal Reserve regulation, the Company's subsidiary bank is limited as to the amount it may loan to its affiliates, including the Company, unless such loans are collateralized by specified obligations. At December 31, 1996, the maximum amount available for transfer from the subsidiary bank to the Company in the form of loans approximated 18 percent of consolidated net assets.
The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this restriction the Company's subsidiary bank can distribute as dividends to the Company in 1997, without prior approval of the Comptroller of the Currency, approximately $ 8,300,000.
NOTE C - SECURITIES
The amortized cost and market value of securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
Proceeds from sales of securities during 1996 were $49,892,000 with gross gains of $150,000 and gross losses of $78,000. During 1995, proceeds from sales of securities were $115,107,000 with gross gains of $778,000 and gross losses of $298,000. During 1994, proceeds from sales of securities were $72,521,000 with gross gains of $1,178,000 and gross losses of $426,000.
Securities with a carrying value of $82,930,000 at December 31, 1996, were pledged to secure United States Treasury deposits, other public deposits and trust deposits.
The amortized cost and market value of securities follow:
NOTE D - LOANS
An analysis of loans follows:
One of the sources of the Company's business is loans to directors, officers and other members of management. These loans are made on the same terms as all other loans and do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was approximately $3,777,000 and $3,786,000 at December 31, 1996 and 1995, respectively. During 1996, $3,035,000 of new loans were made and repayments totalled $3,044,000.
See Page 26 of Management's Discussion and Analysis for information about concentrations of credit risk of all financial instruments.
Note E - Impaired Loans and Allowance for Loan Losses
The Company adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - - Income Recognition and Disclosures," as of January 1, 1995. These statements require that certain impaired loans be measured based on the present value of expected future cash flows discounted at the loan's original effective interest rate. As a practical expedient, impairment may be measured based on the loan's observable market price or the fair value of collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance.
The Company had previously measured the allowance for loan losses using methods similar to those described in Statement of Financial Accounting Standard No. 114. As a result of adopting these statements, no additional allowance for loan losses was required as of January 1, 1995.
The Company's recorded investment in impaired loans and related valuation allowance are as follows:
The valuation allowance is included in the allowance for loan losses. The average recorded investment in impaired loans for the years ended December 31, 1996 and 1995 were $832,000 and $204,000, respectively.
Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. The Company recognized interest income on impaired loans of $22,000 and $37,000 for the year ended December 31, 1995 and 1996.
Transactions in the allowance for loan losses are summarized as follows:
NOTE F - BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
NOTE G - SHORT TERM BORROWINGS
All of the Company's borrowings were comprised of federal funds purchased and securities sold under agreements to repurchase with maturities primarily from overnight to seven days:
The Company's subsidiary bank has unused lines of credit to purchase federal funds from its correspondent banks of $45,500,000 at December 31, 1996.
NOTE H - EMPLOYEE BENEFITS
The Company's profit sharing plan which covers substantially all employees after one year of service includes a matching benefit feature for employees electing to defer the elective portion of their profit sharing compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The profit sharing contributions charged to operations were $801,000 in 1996, $572,000 in 1995 and $539,000 in 1994.
The Company's stock option and stock appreciation rights plans were approved by the Company's shareholders on April 25, 1991 and April 25, 1996. The number of shares of Class A common stock that may be purchased pursuant to the 1991 and 1996 plans shall not exceed 300,000 shares for each plan. The Company has granted options on 286,000 shares and 47,000 shares, respectively through December 31, 1996. Under both plans the option exercise price equals the Class A common stock's market price on the date of grant. All options have a four year vesting period and a contractual life of ten years.
The following table presents a summary of stock option activity for 1995 and 1996:
The following table summarizes information about stock options outstanding at December 31, 1996:
The two stock option plans are accounted for under APB Opinion No. 25, and therefore no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996 and 1995; risk-free interest rates of 7.11 percent for 1996 and 7.59 percent for 1995; expected dividend yield of 3.3 percent; expected lives of 7 years; expected volatility of 20.8 percent.
The Company's defined benefit plan was terminated in 1996 and resulted in a one-time charge of $607,000. The Company has received regulatory approval for the termination and has no further obligation to the plan or its participants.
NOTE I - LEASE COMMITMENTS
The Company is obligated under various noncancelable operating leases for equipment, buildings and land. At December 31, 1996, future minimum lease payments under leases with initial or remaining terms in excess of one year are as follows:
(In thousands of dollars)
Rent expense charged to operations was $1,066,000 in 1996, $995,000 in 1995, and $1,033,000 in 1994. Certain leases contain provisions for renewal and change with the consumer price index.
Certain property is leased from related parties of the Company at prevailing rental rates. Lease payments to these individuals were $206,000 in 1996, $185,000 in 1995, and $259,000 in 1994.
NOTE J - INCOME TAXES
The provision for income taxes including tax effects of security transaction gains (1996 - $27,000; 1995 - $175,000; 1994 - $267,000) are as follows:
- --------------------------------------------------------------------------------
Temporary differences in the recognition of revenue and expense for tax and financial reporting purposes resulted in deferred income taxes as follows:
The difference between the total expected tax expense (computed by applying the U.S. Federal tax rate of 34 percent to pretax income) and the reported income tax expense relating to income before income taxes is as follows:
The net deferred tax assets are comprised of the following:
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:
CASH AND CASH EQUIVALENTS
The carrying amount was used as a reasonable estimate of fair value.
SECURITIES
The fair value of U.S. Treasury and U.S. Government agency, mutual fund and mortgage backed securities are estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers.
The fair value of many state and municipal securities are not readily available through market sources, so fair value estimates are based on quoted market price or prices of similar instruments.
LOANS
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, mortgage, credit card, etc. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.
The fair value of loans, except residential mortgage and credit card loans, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. For residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. For credit card loans, cash flows and maturities are based on contractual terms. The fair value estimate for credit card loans is based on the carrying value of existing loans at December 31, 1996 and 1995. This estimate does not include the value that relates to estimated cash flows from new loans generated from existing cardholders over the remaining life of the portfolio.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the present creditworthiness of the counterparties.
NOTE L - NONINTEREST INCOME AND EXPENSES
Details of noninterest income and expenses follow:
NOTE M - SHAREHOLDERS' EQUITY
The Company has reserved 100,000 Class A common shares for issuance in connection with an employee stock purchase plan and 150,000 Class A common shares for issuance in connection with an employee profit sharing plan. At December 31, 1996, an aggregate of 35,236 shares and 52,422 shares, respectively, have been issued as a result of employee participation in these plans.
Holders of Class A common stock are entitled to one vote per share on all matters presented to shareholders. Holders of Class B common stock are entitled to 10 votes per share on all matters presented to shareholders. Class A and Class B common stock vote together as a single class on all matters, except as required by law or as provided otherwise in the Company's Articles of Incorporation. Each share of Class B common stock is convertible into one share of Class A common stock at any time prior to a vote of shareholders authorizing a liquidation or dissolution of the Company.
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional dicretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's captial amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantiative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 1996 that the Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Company's regulator categorized the Company as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below. There are no conditions or events since that notification that management believes have changed the institution's category.
The above ratios are comparable for the Company's wholly owned banking subsidiary.
NOTE N - ACQUISITION
On April 14, 1995, the Company acquired American Bank Capital Corporation of Florida and its subsidiary, American Bank of Martin County. The transaction was treated as a purchase with the Company paying $9.3 million. The following represents the unaudited proforma impact as of and for the year ended December 31, 1994, assuming the acquisition occurred January 1, 1994:
NOTE O - SEACOAST BANKING CORPORATION OF FLORIDA (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
STATEMENTS OF INCOME
STATEMENTS OF CASH FLOWS
NOTE P - CONTINGENT LIABILITIES AND COMMITMENTS WITH OFF BALANCE SHEET RISK
The Company and its subsidiary bank, because of the nature of their business, are at all times subject to numerous legal actions, threatened or filed.
Management, based upon advice of legal counsel, does not expect that the final outcome of threatened or filed suits will have a materially adverse effect on its results of operations or financial condition.
The Company's subsidiary bank is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.
The subsidiary bank's exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The subsidiary bank uses the same credit policies in making commitments and standby letters of credit as it does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary bank evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, equipment, and commercial and residential real estate. Of the $42,470,000 outstanding at December 31, 1996, $25,900,000 is secured by 1-4 family residential properties.
Standby letters of credit are conditional commitments issued by the subsidiary bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The subsidiary bank holds collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for the above secured standby letters of credit at December 31, 1996 and 1995 amounted to $872,000 and $1,228,000, respectively.
NOTE Q - SUPPLEMENTAL DISCLOSURES FOR CONSOLIDATED STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
NOTE R - REASSESSMENT OF SECURITIES' CLASSIFICATIONS
The Company used the opportunity provided by an implementation guide on SFAS No. 115 to reclassify approximately $69 million from held for investment to the held for sale portfolio in 1995.
In connection with this reclassification, gross unrealized gains of $785,000 and gross unrealized losses of $413,000 were recorded in held for sale securities and in shareholders' equity (net of tax) in 1995.
Report of Independent Certified Public Accountants -- Arthur Andersen LLP
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and executive officers of Seacoast is set forth under the headings "Election of Directors - General," and "- Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the 1997 Proxy Statement and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the headings "Election of Directors - Compensation of Executive Officers", "- Salary and Benefits Committee Report", "- Summary Compensation Table", "- Grants of Options/SARs in 1996", Aggregated Options/SAR Exercises in 1996 and 1996 Year-End Option/SAR Values", "- Profit Sharing Plan", "- Employment and Severance Agreements", "Salary and Benefits Committee Interlocks and Insider Participation"; "- Information About the Board of Directors and its Committees", and in the 1997 Proxy Statement is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth under the headings, "Election of Directors - General," "- Management Stock Ownership," and "Principal Shareholders" in the 1997 Proxy Statement, relating to the number of shares of Class A Common Stock and Class B Common Stock beneficially owned by the directors of Seacoast, all such directors and officers as a group and certain beneficial owners is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth under the heading "Election of Directors - Certain Transactions and Business Relationships" in the 1997 Proxy Statement is incorporated herein by reference.
Salary and Benefits Committee Interlocks and Insider Participation" and PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) 1 List of all financial statements
The following consolidated financial statements and report of independent certified public accountants of Seacoast are included in Item 8 of this Annual Report on Form 10-K.
Report of Independent Certified Public Accountants Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements
a) 2 List of Financial Statement Schedules
Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.
a) 3 Listing of Exhibits
The following Exhibits are filed as part of this report in Item 14(c):
Exhibit 2 Agreement and Plan of Merger Dated February 19, 1997, by and between the Registrant and Port St. Lucie National Bank Holding Corp.
Exhibit 3.1 Articles of Incorporation, as amended Incorporated herein by reference from registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 31, 1989
Exhibit 3.2 By-laws of the Corporation, as amended Incorporated herein by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 4.1 Specimen Class A Common Stock Certificate
Incorporated herein by reference from Exhibit 4.1 of the Registrant's Registration Statement on Form S-1, File No. 2-88829
Exhibit 4.2 Specimen Class B Common Stock Certificate
Incorporated herein by reference from Exhibit 4.2 of registrant's Registration Statement on Form S-1, File No. 2-88829
Exhibit 10.1 Profit Sharing Plan
Incorporated herein by reference from registrant's Registration Statement on Form S-8, File No. 33-22846, dated July 18, 1988
Exhibit 10.2 Employee Stock Purchase Plan
Incorporated herein by reference from registrant's Registration Statement on Form S-8 File No. 33-25267, dated November 18, 1988
Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan Incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 29, 1991
Exhibit 10.4 Executive Employment Agreement Dated March 22, 1991 between A. Douglas Gilbert and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 29, 1991
Exhibit 10.5 Executive Employment Agreement Dated January 18, 1994 between Dennis S. Hudson, III and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement Dated July 31, 1995 between C.William Curtis, Jr. and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 28, 1996.
Exhibit 21 Subsidiaries of Registrant
Incorporated herein by reference from Exhibit 22 of Registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 23 Consent of Arthur Andersen LLP
Exhibit 27 Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of 1996.
c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report.
d) Financial Statement Schedules None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stuart, State of Florida.
SEACOAST BANKING CORPORATION OF FLORIDA (Registrant)
By: /s/ Dale M. Hudson ------------------------------------- Dale M. Hudson President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
Exhibit 2 Agreement and Plan of Merger Dated February 19, 1997, by and between the Registrant and Port St. Lucie National Bank Holding Corp.
Exhibit 3.1 Articles of Incorporation, as amended Incorporated herein by reference from registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 31, 1989
Exhibit 3.2 By-laws of the Corporation, as amended Incorporated herein by reference from Exhibit 3.2 of Registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 4.1 Specimen Class A Common Stock Certificate Incorporated herein by reference from Exhibit 4.1 of the Registrant's Registration Statement on Form S-1, File No. 2-88829
Exhibit 4.2 Specimen Class B Common Stock Certificate Incorporated herein by reference from Exhibit 4.2 of registrant's Registration Statement on Form S-1, File No. 2-88829
Exhibit 10.1 Profit Sharing Plan Incorporated herein by reference from registrant's Registration Statement on Form S-8, File No. 33-22846, dated July 18, 1988
Exhibit 10.2 Employee Stock Purchase Plan Incorporated herein by reference from registrant's Registration Statement on Form S-8 File No. 33-25267, dated November 18, 1988
Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan Incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 29, 1991
Exhibit 10.4 Executive Employment Agreement Dated March 22, 1991 between A. Douglas Gilbert and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 29, 1991
Exhibit 10.5 Executive Employment Agreement Dated January 18, 1994 between Dennis S. Hudson, III and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 28, 1995.
Exhibit 10.6 Executive Employment Agreement Dated July 31, 1995 between C.William Curtis, Jr. and the Bank, incorporated herein by reference from registrant's Annual Reports on Form 10-K, dated March 28, 1996.
Exhibit 21 Subsidiaries of Registrant Incorporated herein by reference from Exhibit 22 of Registrant's Annual Report on Form 10-K, File No. 0-13660, dated March 17, 1992
Exhibit 23 Consent of Arthur Andersen LLP
Exhibit 27 Financial Data Schedule (for SEC use only)


Item 1.	BUSINESS
a.	Recent Developments and Description
Bairnco Corporation was incorporated under the laws of the State of New York on April 9, 1981. Effective September 24, 1991, Bairnco Corporation changed its state of incorporation from New York to Delaware. Unless otherwise indicated herein, the terms "Bairnco" and the "Corporation" refer to Bairnco Corporation and its subsidiaries.
Bairnco's two core businesses are Arlon's Engineered Materials and Components, and Kasco's Replacement Products and Services.
At December 31, 1996, Bairnco employed 820 persons including 11 Headquarters personnel. Bairnco's operations occupy approximately 685,500 square feet of factory and office space at its principal locations.
b. & c. Financial Information About Industry Segments and Narrative Description of Business
Bairnco Corporation is a diversified multinational company that operates two business sectors. Engineered materials and components are designed, manufactured and sold under the Arlon brand identity to electronic, industrial and commercial markets. Replacement products and services are manufactured and distributed under the Kasco name principally to retail food stores and meat, poultry and fish processing plants throughout the United States, Canada and Europe. Kasco also distributes equipment to the food industry in Canada and France.
Financial data and other information about the Corporation's segments is set forth in Note 9 to the Consolidated Financial Statements on pages 23 and 24 and on pages 4 through 7 of Bairnco's 1996 Annual Report to Stockholders which is incorporated herein by reference. This information should be read in conjunction with the "Financial History" set forth on page 9 of Bairnco's 1996 Annual Report to Stockholders, and "Management's Discussion and Analysis" set forth on pages 10 and 11 of Bairnco's 1996 Annual Report to Stockholders, which is incorporated herein by reference.
The principal facilities utilized by each segment are detailed on page 9 under "Item 2.

Item 2. PROPERTIES
The following chart lists for the Corporation as a whole, and by each of its segments, the principal locations of the Corporation's facilities and indicates whether the property is owned or leased and if leased, the lease expiration date.
LEASED OR OWNED LOCATION SQUARE FEET (LEASE EXPIRATION)
CORPORATION TOTAL 685,500
Headquarters
Maitland, FL 7,700 Leased(Expires 2000)
Replacement Products and Services (KASCO)
City of Industry, CA 15,000 Leased(Expires 1997) Gwent, Wales, UK 25,000 Owned Lyon, France 11,000 Leased(Expires 1999) Montreal, Quebec, Canada 7,000 Leased(Expires 1998) Pansdorf, Germany 22,000 Owned Paris, France 12,000 Leased(Expires 1997) Rennes, France 4,800 Leased(Expires 1997) Scarborough, Ontario, Canada 33,000 Owned St. Louis, MO 75,000 Owned St. Louis, MO 20,000 Leased(Expires 2000) Field Warehouses (Approximately 70 locations in North America) 36,000 Leased
Engineered Materials and Components (Arlon)
Bear, DE 145,000 Owned East Providence, RI 68,000 Owned Rancho Cucamonga, CA 80,000 Owned Santa Ana, CA 124,000 Leased(Expires 2003)
Item 3.

Item 3. LEGAL PROCEEDINGS
Since its announcement in January 1990 of its intention to spin off Keene, Bairnco has been named as a defendant in a number of individual personal injury and wrongful death cases in which it is alleged that Bairnco is derivatively liable for the asbestos-related claims against Keene. On December 6, 1993, Keene filed for protection under Chapter 11 of the Bankruptcy Code. On June 8, 1995, the Creditors' Committee commenced an adversary proceeding in the Bankruptcy Court against Bairnco, certain of its present and former officers and directors, and others alleging that the transfer of assets for value by Keene to other subsidiaries of Bairnco and the spin-offs of certain subsidiaries by Bairnco, were fraudulent and otherwise violative of law and seeking compensatory damages of $700 million, plus interest and punitive damages (the "Transactions Lawsuit"). The complaint in the Transactions Lawsuit includes a count under the civil RICO statute, 18 U.S.C. Section 1964, pursuant to which compensatory damages are trebled.
Management believes that Bairnco has meritorious defenses to all claims or liability purportedly derived from Keene and that it is not liable, as an alter ego, successor, fraudulent transferee or otherwise, for the asbestos-related claims against Keene or with respect to Keene products.
Bairnco is party to a separate action brought by Keene in the United States Bankruptcy Court for the Southern District of New York in which Keene seeks the exclusive benefit of tax refunds attributable to the carryback by Keene of certain net operating losses ("NOL Refunds"), notwithstanding certain provisions of tax sharing agreements between Keene and Bairnco (the "NOL Lawsuit"). (After filing the NOL Lawsuit, Keene ceded control of the action to the Creditors' Committee.) Pending resolution of the NOL Lawsuit, any refunds actually received are to be placed in escrow. Through December 31, 1996, approximately $28.5 million of NOL Refunds had been received and placed in escrow. There can be no assurance whatsoever that resolution of the NOL Lawsuit will result in the release of any portion of the NOL Refunds to Bairnco.
Keene's plan of reorganization was approved and became effective on July 31, 1996. The plan, as approved, creates a Creditors Trust that has succeeded to all of Keene's asbestos liabilities, and also has succeeded to the right to prosecute both the Transactions Lawsuit and the NOL Lawsuit. The plan also includes a permanent injunction under which only the Creditors Trust, and no other entity, can sue Bairnco in connection with the claims asserted in the Transactions Lawsuit. Prior to confirmation, Bairnco and other defendants in the Transactions Lawsuit had entered into a stipulation (the "Transactions Stipulation") that calls for the Transactions Lawsuit to be litigated in the District Court. The anticipated effect of these various provisions is that all claims and claimants against Bairnco that relate to Keene's asbestos liabilities should be consolidated for a single, binding resolution in the Transactions Lawsuit in the District Court.
In keeping with the Transactions Stipulation, the parties have moved to withdraw the reference - that is, they have requested that the District Court assume from the Bankruptcy Court all responsibility for overseeing the Transactions Lawsuit. Pending action on this request, proceedings in the Transactions Lawsuit are stayed.
Bairnco Corporation and its subsidiaries are defendants in a number of other actions. Management of Bairnco believes that the disposition of these other actions, as well as the actions and proceedings described above, will not have a material adverse effect on the consolidated results of operations or the financial position of Bairnco Corporation and its subsidiaries as of December 31, 1996.
Item 4.

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information required with respect to executive officers of the Corporation is as follows:
Name and Age of Data Pertaining to Executive Officers		 Executive Officers
Luke E. Fichthorn III (55) Mr. Fichthorn has served as Chairman of Bairnco since May 1990, and on December 18, 1991, became Chief Executive Officer of Bairnco. For over twenty-four years, Mr. Fichthorn has been a private investment banker and partner of Twain Associates, a private investment banking and consulting firm. Mr. Fichthorn served as a director of Keene Corporation, a former subsidiary of Bairnco Corporation from August, 1969 until May, 1981, and became a director of Bairnco in January, 1981. Mr. Fichthorn is also a director of Florida Rock Industries, Inc. and FRP Properties, Inc., neither of which is affiliated with Bairnco.
J. Robert Wilkinson (62) Mr. Wilkinson was elected Vice President - Finance and Treasurer in March 1990. From September 1986 to September 1989, Mr. Wilkinson was Bairnco's Vice President - Controller. From October 1989 to March 1990 he was Executive Vice President of Shielding Systems Corporation, a wholly- owned subsidiary of Bairnco. Prior to joining Bairnco, Mr. Wilkinson served as Vice President and Controller of Transway International Corporation from November 1981 to June 1986.
Linda Metcalf (51) Mrs. Metcalf was appointed Vice President Administration & Secretary of Bairnco on October 21, 1996. Mrs. Metcalf was previously Managing director of Human Resources at CBIS.
PART II
Item 5.

Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a. & c. Data regarding market prices of Bairnco's common stock is included in the "Quarterly Results of Operations" on page 12 of Bairnco's 1996 Annual Report to Stockholders which is incorporated herein by reference. Bairnco's common stock is traded on the New York Stock Exchange under the symbol BZ. Data on dividends paid is included in the Consolidated Statements of Income on page 14 of Bairnco's 1996 Annual Report to Stockholders which is incorporated herein by reference. The quarterly cash dividend remained constant at $0.05 per share during 1996. The Board continues to review the dividend on a quarterly basis.
b. The approximate number of common equity security holders is as follows:
Approximate Number of Holders of Record Title of Stock as of December 31, 1996 Common Stock, Par Value $.01 per share 1,773
Item 6.

Item 6. SELECTED FINANCIAL DATA
Reference is made to "Financial History" on page 9 of Bairnco's 1996 Annual Report to Stockholders, which is incorporated herein by reference.
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the "Management's Discussion and Analysis" on pages 10 and 11 of Bairnco's 1996 Annual Report to Stockholders which is incorporated herein by reference.
Item 8.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements and accompanying Notes included on pages 14 through 24 and the "Quarterly Results of Operations" on page 12 of Bairnco's 1996 Annual Report to Stockholders which is incorporated herein by reference. Financial Statement Schedules are included in Part IV of this filing.
Item 9.

Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required with respect to directors of Bairnco is included in the Proxy Statement for the 1997 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference.
See the information regarding executive officers of the Corporation on page 12 of this Annual Report on Form 10-K.
Item 11.

Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is included in the Proxy Statement for the 1997 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference.
Item 12.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is included in the Proxy Statement for the 1997 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference.
Item 13.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is included in the Proxy Statement for the 1997 Annual Meeting of Stockholders of Bairnco, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference.
PART IV
Item 14.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) 1. Financial Statements
Included in the 1996 Annual Report to Stockholders which is included as Exhibit 13 to this Annual Report on Form 10-K:
Report of Independent Certified Public Accountants; Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994; Consolidated Balance Sheets as of December 31, 1996 and 1995; Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994; Consolidated Statements of Stockholders' Investment for the years ended December 31, 1996, 1995 and 1994; Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Included in Part IV of this Annual Report on Form 10-K:
Report of Independent Certified Public Accountants on Financial Statement Schedules on page 19 of this Annual Report on Form 10-K; Financial Statement Schedules for the years ended December 31, 1996, 1995 and 1994:
Schedule II - Valuation and Qualifying Accounts on page 20 of this Annual Report on Form 10-K;
All other schedules and notes are omitted because they are either not applicable, not required or the information called for therein appears in the Consolidated Financial Statements or Notes thereto.
3. See Index to Exhibits on pages 22 through 24 of this Annual Report on Form 10-K.
b)	Reports on Form 8-K - None for fiscal year 1996.
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.
BAIRNCO CORPORATION (Registrant)
Date: March 21, 1997 By: /s/ J. Robert Wilkinson J. Robert Wilkinson Vice President-Finance and Treasurer (Principal Financial Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated above.
/s/ Luke E. Fichthorn III Luke E. Fichthorn III - Chairman and CEO
/s/ Richard A. Shantz Richard A. Shantz - Director
/s/ Charles T. Foley Charles T. Foley - Director
/s/ William F. Yelverton William F. Yelverton - Director
/s/ J. Robert Wilkinson J. Robert Wilkinson - Vice President-Finance and Treasurer (Principal Financial Officer)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
TO BAIRNCO CORPORATION:
We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Bairnco Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 23, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a) 2 is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
Orlando, Florida January 23, 1997 Arthur Andersen LLP
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
EXHIBITS TO FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No.: 1-8120
BAIRNCO CORPORATION
(Exact name of registrant as specified in the charter)

INDEX TO EXHIBITS
Certificate of Incorporation, as amended through September 24, 1991.	 Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1991.
By Laws, as amended through December 18, 1991. Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1991.
Amended and Restated Credit Agreement, dated as of December 17, 1992, among Bairnco Corporation and certain of its subsidiaries, as guarantors, and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Incorporated herein by reference to Exhibit 3.1 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1992.
Promissory note, dated December 17, 1992, between Bairnco Corporation and Continental Bank NA (now Bank of America, Illinois). Incorporated herein by reference to Exhibit 3.2 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1992.
Amendment dated as of March 16, 1994 to Amended and Restated Credit Agreement dated as of December 17, 1992, by and among Bairnco Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Incorporated herein by reference to Exhibit 3 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1993.
Promissory note, dated as of September 1, 1989, between Arlon, Inc. and the Delaware Economic Development Authority. Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989.
Indenture of Trust, series 1989, dated as of September 1, 1989, between the Delaware Economic Development Authority and Manufacturers and Traders Trust Company, securing variable rate demand Industrial Development Refunding Revenue Bonds (Arlon, Inc. Project), series 1989 of the Delaware Economic Development Authority. Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989.
Loan Agreement, dated as of September 1, 1989, between the Delaware Economic Development Authority and Arlon, Inc. Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989.
Reimbursement Agreement dated as of September 1, 1989 by and among Arlon, Inc., Bairnco Corporation and Continental Bank NA (now Bank of America, Illinois). Incorporated herein by reference to Exhibit 4 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989.
Agreement of the Company, dated March 30, 1987, to furnish a copy of any instrument with respect to certain other long-term debt to the Securities and Exchange Commission upon its request. Incorporated herein by reference to Exhibit 4(e) to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1986.
Lease dated December 10, 1991 between Mattei Corporation and Bairnco Corporation. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1991.
Lease, dated May 1, 1985, between John B. Merrill, Joseph S. Weedon and Richard A. Westberg and KASCO Corporation as successor to Atlantic Service, Inc. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1986.
Standard Industrial Lease dated June 30, 1983 between James E. and Nancy S. Welsh, trustees under Welsh Family Trust, dated April 20, 1979 and Arlon, Inc. as successor to Keene Corporation. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1983.
Bairnco Corporation 401(k) Savings Plan and Trust. Incorporated herein by reference to Exhibit 4.3 to Bairnco's Registration Statement on Form S-8, No. 33-41313.
Bairnco Corporation 1990 Stock Incentive Plan. Incorporated herein by reference to Exhibit 4.3 to Bairnco's Registration Statement on Form S-8, No. 33-36330.
Bairnco Corporation Management Incentive Compensation Plan. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1981.
Employment Agreement dated January 22, 1990, between Bairnco Corporation and Luke E. Fichthorn III. Incorporated herein by reference to Exhibit 10 to Bairnco's Annual Report on Form 10-K for fiscal year ended December 31, 1989.
Amendment dated as of April 18, 1995, to Amended and Restated Credit Agreement dated as of December 17, 1992, by and among Bairnco Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Continental Bank NA (now Bank of America, Illinois), as the Agent for Lenders. Incorporated herein by reference to Exhibit 4 to Bairnco's Quarterly Report on Form 10-Q for the quarterly period ended April 1, 1995.
Amendment dated as of February 14, 1997, to Amended and Restated Credit Agreement dated as of December 17, 1992, by and among Bairnco Corporation and certain of its subsidiaries and certain Commercial Lending Institutions and Bank of America, Illinois, as the Agent for Lenders. Exhibit 4 filed herewith.
Calculation of Primary and Fully Diluted Earnings per Share for the years ended December 31, 1996, 1995 and 1994. Exhibit 11 filed herewith.
1996 Annual Report to Stockholders. Exhibit 13 filed herewith.
Subsidiaries of the Registrant. Exhibit 21 filed herewith.
Consent of Independent Certified Public Accountants. Exhibit 23 filed herewith.
Financial Data Schedules. Exhibit 27 filed herewith (electronic filing only).
Form 11-K Re: Bairnco Corporation 401(k) Savings Plan and Trust for the fiscal year ended December 31, 1996. Exhibit 99 filed herewith.


ITEM 1. BUSINESS
GENERAL
IP Timberlands, Ltd. (the "Registrant") is a Texas limited partnership formed by International Paper Company ("International Paper") to succeed to substantially all of International Paper's forest resources business. The Registrant's forest resources business includes the marketing and sale of forest products for use as sawlogs, poles and pulpwood. In addition, the Registrant may sell or exchange portions of its forestlands and may acquire additional properties for cash, additional units or other consideration.
The Registrant operates through IP Timberlands Operating Company, Ltd., a Texas limited partnership ("IPTO"), in which the Registrant holds a 99% limited partner's interest. IP Forest Resources Company ("IPFR"), a wholly owned subsidiary of International Paper, is the managing general partner of the Registrant and IPTO, and International Paper is the special general partner of both. A further discussion of the Registrant's organization appears on the inside front cover and page 13 of the Annual Report to Unitholders (the "Annual Report"), which information is incorporated herein by reference.
DESCRIPTION OF PRINCIPAL PRODUCTS
The Registrant's forestlands include merchantable forest products inventory, approximately 60% of which consists of commercial softwoods, principally southern pine in the South, and spruce and fir in the Northeast. A variety of hardwoods account for the remaining 40% of the inventory.
The Registrant sells forest products to International Paper for use in its pulp mills and wood products plants and to third party customers.
A discussion of the Registrant's harvest plan is presented on page 7 of the Annual Report, which information is incorporated herein by reference.
COMPETITION AND COSTS
Log and wood fiber consuming facilities tend to purchase raw materials within relatively small geographic areas, generally within a 100-mile radius. Competitive factors within a market area generally include price, species, grade and proximity to wood-consuming facilities. The Registrant competes in the log and wood fiber market with numerous private industrial and non-industrial forestland owners as well as with the U.S. government, principally the U.S. Forest Service. Litigation involving endangered species and environmental concerns has caused a decline in government forest products sales volumes and market share in recent years and has resulted in additional demand and higher prices for private forestland owners.
Many factors influence the Registrant's competitive position, including costs, prices, product quality and services.
MARKETING
Consistent with International Paper's experience prior to the contribution of its forestlands to the Registrant, the Registrant has annually sold forest products from its lands to more than 500 purchasers other than International Paper. No unaffiliated customer accounted for more than 10% of annual revenues for the years 1996 and 1995.
During 1996, 1995, and 1994, International Paper's facilities consumed approximately 29%, 31% and 30%, respectively, of the logs and wood fiber harvested from the Registrant's forestlands, which represented approximately 9%, 11% and 10%, respectively, of its manufacturing facilities' requirements during such periods. International Paper does not anticipate any change in its policy of relying on the Registrant's forestlands as an important source of raw material for its manufacturing facilities, although it is unable to predict what portion of its requirements will be purchased from the Registrant in the future. In addition to sales to International Paper for use in its manufacturing facilities, the Registrant sells trees to International Paper that are harvested and resold by International Paper to unaffiliated purchasers as logs, poles or pulpwood.
Additional information on marketing activities, including related parties and major customers, appears on pages 7, 13 and 14 of the Annual Report, which information is incorporated herein by reference.
ENVIRONMENTAL PROTECTION AND SUSTAINABLE FOREST MANAGEMENT
Management of the Registrant's forestlands to protect the environment and maintain the health of its forestlands is a continuing commitment of the Registrant. The Registrant expends considerable efforts to comply with regulatory requirements and applicable best management practices regarding the use of pesticides, protection of wetlands, protection of wildlife and biodiversity and minimization of stream sedimentation and soil erosion. From time to time the Registrant volunteers to, or may be required to, clean up certain solid waste sites on its forestlands, created by the general public. Forests are managed in accordance with the Registrant's and International Paper's Sustainable Forestry Guidelines which were developed in 1995, based on the American Forest and Paper Association's Sustainable Forestry Principles, which were adopted by International Paper and the Registrant in 1994. Environmental protection and forest management costs and capital expenditures have not been significant and are not expected to be significant in the future.
EMPLOYEES
The Registrant does not have officers or directors. Instead, officers and directors of IPFR perform all management functions for the Registrant. In most respects, the Registrant conducts the business formerly conducted by the Forestlands Division of International Paper. Consequently, the employees of International Paper or its subsidiaries formerly assigned to such division continue to carry out the activities of the Registrant. These employees continue to be employees of International Paper and in some cases are employed solely for the conduct of the Registrant's business.
ITEM 2.

ITEM 2. PROPERTIES
FORESTLANDS
Forestlands include approximately 5,034,000 acres owned in fee (excluding any interest in underlying minerals) and approximately 532,000 acres held under long-term deeds and leases (terms of three years or longer). These forestlands are located in 12 states in two major regions of the United States. In the southern and southeastern United States, forestlands are located in seven states, including approximately 3,571,000 acres owned in fee and approximately 531,000 acres held under long-term deeds and leases. In the Northeast, forestlands are located in Maine, New York, Pennsylvania, Vermont and New Hampshire, including approximately 1,463,000 acres owned in fee and approximately 1,400 acres held under long-term deeds and leases. The deeds and leases held by the Registrant do not include deeds and leases with terms of less than three years which are managed by International Paper in connection with short-term wood procurement for its manufacturing facilities.
In March 1996, the Registrant sold a 98% general partnership interest in a subsidiary partnership owning all of Registrant's Western region assets. Additional information on the sale of the Western assets appears on pages 7, 9 and 14 of the Annual Report, which information is incorporated herein by reference.
CAPITAL INVESTMENTS
Discussion of the Registrant's capital investments can be found on pages 8 and 9 of the Annual Report, which information is incorporated herein by reference.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Registrant is involved in various legal proceedings incidental to its business. While any proceeding or litigation has an element of uncertainty, the Registrant believes that the outcome of any lawsuit or
claim that is pending or threatened, or all of them combined, will not have a material adverse effect on its consolidated financial position or results of operations.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The market and cash distribution data on the Registrant's Class A Depositary Units are set forth below and on the inside front cover and page 17 of the Annual Report and are incorporated herein by reference.
As of March 21, 1997, there were 2837 holders of record of the Registrant's Class A Depositary Units.
Set forth below are the market price ranges for each quarter of 1996 and 1995 for the Class A Depositary Units on the New York Stock Exchange Composite Index.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for 1996, 1995 and 1994 is set forth on page 1 of the Annual Report and is incorporated herein by reference. Selected financial data for 1993 and 1992 is as follows (in thousands, except per unit data):
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's review and comments on the consolidated financial statements are set forth on pages 7 through 9 of the Annual Report and are incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's consolidated financial statements, the notes thereto and the report of independent public accountants are set forth on pages 10 through 16 and 18 of the Annual Report and are incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
FORWARD-LOOKING INFORMATION
THIS 1996 ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS CONCERNING REGISTRANT'S BUSINESS PROSPECTS, POSSIBLE DECLINES
IN DISTRIBUTIONS AND THE PRICE OF THE CLASS A UNITS. OVERALL MARKET CONDITIONS COULD INFLUENCE THE EXPECTED PRICE DECLINE OF THE CLASS A UNITS AND THE POSSIBILITY OF A DECLINE IN THE DISTRIBUTIONS TO CLASS A UNITHOLDERS.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of IPFR(1) and their business experiences are as set forth below(2):
John T. Dillon, 58, Chairman and Chief Executive Officer of IPFR since 1996. He became Chairman and Chief Executive Officer of International Paper in 1996. Prior to that he was executive vice president - packaging from 1987 to 1995 when he assumed the position of president and chief operating officer of International Paper. He is also a director of Caterpillar Inc., and he is Chairman of the Board of The National Council on Economic Education.
DIRECTOR SINCE MARCH 31, 1996
**Thomas C. Graham, 70, Consultant. Retired Chairman of the Board of AK Steel Corporation. Previously, he was Chairman and Chief Executive Officer, elected to those posts concurrent with the formation of AK Steel, a publicly held corporation which emerged from the privately-held Armco Steel Company, L.P. in April of 1994. He had been named president and chief executive officer of Armco Steel in June 1992. He was formerly chairman and chief executive officer of Washington Steel Corporation until 1992. He is a director of Hershey Foods Corporation and International Paper Company.
DIRECTOR SINCE APRIL 12, 1994
**Jane C. Pfeiffer, 64, Management Consultant. She is a director of Ashland, Inc., International Paper Company, J.C. Penney Company, Inc., and The Mutual Life Insurance Company of New York. She is a trustee of the Conference Board, the University of Notre Dame and the Overseas Development Council and a member of The Council on Foreign Relations.
DIRECTOR SINCE FEBRUARY 1, 1990
**Roger B. Smith, 71, Retired Chairman and Chief Executive Officer of General Motors Corporation from 1981 to 1990. He is a director of International Paper Company and Johnson & Johnson. He is a member of The Business Council and is a trustee of the Michigan Colleges Foundation, Inc. and the Sloan Foundation.(3)
DIRECTOR SINCE APRIL 12, 1994
- ------------------------
(1) Managing Partner of the Registrant
(2) Arthur G. Hansen, a director of IPFR since Feb. 1, 1990 retired on February 11, 1997.
(3) Roger B. Smith, a director of IPFR since April 12, 1994 will retire from the Board on July 12, 1997.
** Member of the Audit Committee of IPFR. The Audit Committee reviews policies and practices of the Registrant dealing with various matters (including accounting and financial practices) as to which conflicts of interest with the special general partner may arise. The Audit Committee consists of nonemployee directors of IPFR.
EXECUTIVE OFFICERS AS OF MARCH 31, 1997 INCLUDING NAME, AGE, OFFICES AND POSITIONS HELD*, AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
EDWARD J. KOBACKER, 58, president since August 1992. He was general manager and group executive of the kraft paper group of International Paper from 1987 to 1992, when he assumed his current position and was elected vice president and general manager-forestlands division of International Paper.
FREDERICK L. BLEIER, 48, treasurer and controller since July 1993; controller from 1991. He has been sector controller-forest products of International Paper since July 1993. He was director-corporate accounting of International Paper from 1990 to 1993. He joined International Paper as manager-financial reporting in 1988.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The three nonemployee directors of IPFR receive a retainer of $7,000 per year plus a fee of $1,200 for each IPFR Board and committee meeting attended. These fees are paid by IPFR. The Registrant has no employees. All management and services are performed by International Paper on behalf of the Registrant. International Paper pays the personnel used in the Registrant's business, with certain expenses reimbursed to it by the Registrant.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant knows of no one owning beneficially more than five percent (5%) of the Registrant's Class A Depositary Units except International Paper, which owns approximately eight-four percent (84%). The following table shows, as of March 21, 1997, the number of Class A Depositary Units in the Registrant that were beneficially owned (as defined by the Securities and Exchange Commission) or otherwise claimed by current IPFR directors and by all IPFR directors and executive officers as a group.
The certificate of incorporation of IPFR ("IPFR Charter") provides for two classes of common stock: Class A Common Stock and Class B Common Stock, of which International Paper is the sole owner. The Class B Common Stock possesses exclusive voting rights and the holder or holders thereof are entitled to cumulative voting for the election of directors of IPFR. Except with respect to voting rights, the Class B Common Stock of IPFR is equal in all other respects to the Class A Common Stock of IPFR. However, the Class B Common Stock represents only .00005 of 1% of the total authorized Common Stock of IPFR, all of which has been issued and is outstanding.
- ------------------------ (1) Ownership shown includes securities over which the individual has or shares, directly or indirectly, voting or investment powers, including units owned by a spouse or relatives and ownership by trusts for the benefit of such relatives, as required to be reported by the Securities and Exchange Commission. Certain individuals may disclaim beneficial ownership of some of these units, but they are included for the purpose of computing the holdings and the percentages of Class A Depositary Units owned. * Officers of IPFR are elected to hold office until the next annual meeting of the board of directors and until election of successors, subject to removal by the board.
The IPFR Charter further provides that in the event International Paper owns, or as a result of certain events would own, less than 50% of either the outstanding Class A Depositary Units or Class B Depositary Units, then (i) International Paper must sell all of the shares of Class B Common Stock to the directors of IPFR, on a pro rata basis, at a price equal to $100.00 per share in cash; (ii) any director who does not purchase his pro rata shares of Class B Common Stock must resign; and (iii) the directors of IPFR are then required, as soon as practicable but not later than the next annual meeting of stockholders of IPFR, to vote or cause their shares of Class B Common Stock to be voted to elect a Board of Directors of IPFR comprised entirely of persons who are not employees, officers, directors or affiliates of International Paper or of any affiliate of International Paper (other than IPFR). Each director of IPFR is further required to execute a voting trust agreement, pursuant to which transfer of ownership in the Class B Common Stock is restricted to persons who are directors of IPFR. In order to maintain the independence of IPFR's Board of Directors, the IPFR Charter further provides that (i) each director, upon resigning as a director of IPFR, must sell his shares of Class B Common Stock to IPFR, and (ii) each subsequent director elected to replace any director so resigning must similarly purchase shares of Class B Common Stock and enter into the voting trust agreement and stockholders' agreement described above. International Paper believes that the foregoing arrangement for the possible ownership of the Class B Common Stock of IPFR assists in reducing the potential for conflicts of interests should International Paper's ownership of units decrease significantly.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A description of certain relationships and related transactions is set forth on pages 13 through 16 of the Annual Report and is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
None.
FINANCIAL STATEMENT SCHEDULES
The consolidated balance sheets as of December 31, 1996 and 1995, and the related consolidated statements of earnings and cash flows for each of the three years in the period ended December 31, 1996, together with the report thereon of Arthur Andersen LLP, dated February 7, 1997, appearing on pages 10 through 16 and 18 of the Annual Report, are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated by reference in Items 1, 2, 5 through 8 and 13, the Annual Report is not to be deemed filed as part of this report.
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.
IP TIMBERLANDS, LTD.
By: IP Forest Resources Company (as managing general partner)
By: JAMES W. GUEDRY ----------------------------------------- James W. Guedry, VICE PRESIDENT & SECRETARY
March 28, 1997
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:
NAME TITLE DATE - ------------------------------ -------------------------- -------------------
JOHN T. DILLON Chairman of the Board - ------------------------------ Chief Executive March 28, 1997 (John T. Dillon) Officer and Director
THOMAS C. GRAHAM* - ------------------------------ Director March 28, 1997 (Thomas C. Graham)
JANE C. PFEIFFER* - ------------------------------ Director March 28, 1997 (Jane C. Pfeiffer)
ROGER B. SMITH* - ------------------------------ Director March 28, 1997 (Roger B. Smith)
FREDERICK L. BLEIER Treasurer & Controller and - ------------------------------ Chief Financial and March 28, 1997 (Frederick L. Bleier) Accounting Officer
*By: JAMES W. GUEDRY ------------------------- (James W. Guedry, ATTORNEY-IN-FACT)
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