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| Release Date:July 27, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| SEACOAST REPORTS SECOND QUARTER RESULTS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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“During the quarter, we made significant progress in reducing our exposures to construction and development loans and have specific plans in place to further reduce these exposures in the coming months”, said Dennis S. Hudson, III, Chairman and Chief Executive Officer. “This effort, which started over two years ago, and our recent success in producing quality growth in our residential mortgage portfolio, is reducing the overall risk profile of the Company. While we remain very disappointed in our overall performance, our strong customer franchise and low cost core deposit base continued to produce solid core earnings. We believe reduced exposures to construction and development loans are the key to lower credit costs in future quarters.” Loan Portfolio Risk Reduction Update Construction and land development portfolios are being run off and risk is being reduced. These portfolios have been the primary source of increases in both nonperforming loans and loan losses over the past two years.
Run-off of these portfolios has been achieved through early recognition of the potential for portfolio weakness in the first quarter of 2007 when the housing market began to slow, aggressive collection and liquidation activities with borrowers, and additional liquidation achieved through the sale of larger problem loans. Total construction and land development loans have been reduced to less than half of that reported at the high point in 2007, with over $200 million in reduction having been achieved over the past four quarters. Residential construction and land development loans, which have produced extremely high loss experience over the past two years, have been reduced by 73 percent compared to the high point in 2007. Portfolio liquidation for residential construction and development loans has also been focused on large loan exposures. Large balance (over $4 million) residential construction and land development loans have been reduced by $119.7 million to $44.0 million over the past six quarters, most of which ($37.5 million) is currently on nonaccrual. This portfolio is now in the process of liquidation in accordance with specific work-out plans with borrowers designed to achieve substantial liquidation in an orderly fashion over the next 18 months. We expect aggregate loss exposure in this portfolio to moderate significantly in the second half of this year. Commercial real estate mortgage loans remain well diversified (as shown in the table below) with all but three categories of exposure at less than 30 percent of tier 1 capital and the allowance for loan losses. The three largest categories of exposure are: office buildings, retail trade and industrial at 61 percent, 52 percent and 40 percent, respectively, of tier 1 capital and the allowance for loan losses. Approximately 35 percent of commercial real estate mortgage loans are owner occupied with an average loan-to-value of 48 percent and originated over a wide timeframe. The non-owner occupied portion of the portfolio has an average loan-to-value of 54 percent. While, over time, the Company may see further deterioration in this portfolio as a result of continuing economic weakness, we expect a much lower level of loss potential than recently experienced in our construction and land development portfolios. Problem Loan Management and Loss Mitigation Update Problem assets grew during the quarter due to continued deterioration as a result of economic conditions and greater focus on early intervention loss mitigation strategies (as discussed last quarter) including troubled debt restructures for smaller commercial and consumer borrowers. The pace of growth began to moderate for nonaccruing loans, while other real estate owned grew higher as problem assets migrated toward liquidation. Nonaccrual Loans June 30, 2009
*Loans classified as nonaccrual and less than 30 days past due. Nonaccruing loans grew by $17.4 million from March 31, 2009 to $126.8 million at June 30, 2009. Growth in nonaccruing loans coming from the construction and land development portfolios slowed considerably to $5.5 million, while residential mortgage nonaccruing loans grew by $12.0 million during the quarter. Nonaccruing loans also include restructured loans that are currently classified as nonaccruing. Company policy requires troubled debt restructures to be classified as nonaccrual loans (under certain circumstances) until performance can be verified (typically six months). We will continue to pursue troubled debt restructures in selected cases where we expect to achieve better liquidation values than may be expected through other traditional collection activities. During the quarter, we also worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure and keep families in their homes. A total of 102 applications were received seeking restructured mortgages, compared to 93 the first quarter and 37 in the fourth quarter of last year. Restructured loans included in nonaccruing loans totaled $33.4 million at June 30, 2009 compared with $32.9 million at March 31, 2009. At June 30, 2009, nonaccruing loans which totaled $126.8 million have been written down by approximately $36.2 million or 24 percent of the original loan balance (including specific impairment reserves). During the quarter we saw improvements in past due loans. Early stage delinquency improved in the residential mortgage loan portfolio and remained modest in other loan portfolios. Accruing residential mortgage loans (including home equity lines) 30-89 days past due declined to $3.7 million from $6.7 million, and loans 90 days past due declined to zero from $3.9 million on a linked quarter basis. These improvements were supported by healthier trends in our markets during the quarter. Residential home prices in the Company’s markets and Florida continued to show signs of stability as home sales volumes and inventory levels continued to improve, although the rate of unemployment remains high. Other real estate owned (“OREO”) grew by $10,575,000 to $23,259,000, reflecting a migration of a number of commercial and residential properties through the final foreclosure process which offset sales and liquidations for the quarter. OREO is expected to grow in the coming quarter and increase over the next few quarters as we conclude final liquidation and resolution of many nonaccrual loans. During the quarter, resources were positioned to help accelerate the marketing and liquidation of assets in this portfolio. Operating earnings (before the provision for loan losses and income taxes) excluding FDIC special assessment, OREO losses, securities gains and severance payments of $308,000 for the second quarter of 2009 totaled approximately $4.6 million, up from the $4.2 million earned in the first quarter 2009 excluding the same items noted for the second quarter 2009. During the quarter, the negative impact on net interest income from higher nonperforming loans, together with increased collection costs, were absorbed by improved net interest margin performance, better deposit mix, increased investment securities yield and reduced salary and benefits, data processing, occupancy, and other expenses. Net interest income (on a tax equivalent basis) was $19.0 million, up $746,000 or 16 percent annualized from the first quarter 2009 as a result of lower deposit costs and lower rates paid on all interest bearing liabilities, increased yield on investments, partially offset by a decline in loans, lower loan yields and higher nonperforming loans. The net interest margin, which totaled 3.65 percent, increased 21 basis points compared to the first quarter 2009, and was 4 basis points lower than in second quarter 2008. Noninterest income, excluding securities gains and losses, totaled $3.9 million, down $828,000 linked quarter, primarily due to an increase of $763,000 in OREO losses, as well as lower revenue related to seasonal declines in fees from merchant services. The revenues from these sources were partially offset by higher revenues from debit card fees, the result of the growth in new deposit households. Wealth management and marine finance fees continue to be impacted by the challenging economic conditions. Mortgage production remained comparable to the first quarter with revenues at $488,000, and totaled $987,000 for the first half of 2009, up $269,000 over the first six months last year. Noninterest expenses for the second quarter totaled $20.3 million, $1.2 million higher than in the first quarter 2009, largely the result of the FDIC special assessment. Salaries, wages and benefits (excluding one time severance payments) for the second quarter 2009 declined $765,000 or 8.4 percent from a year ago, and were $2.3 million lower for the first six months compared to the same period in 2008, as a result of consolidation of branches and centralization of management by combining markets. Cost reductions were also achieved in backroom areas, with expenditures for data processing, communications, occupancy, and furniture and equipment all declining compared to the prior year. Increasing this quarter were costs related to foreclosed and repossessed asset management activities, which increased by $287,000 compared to the first quarter 2009, as well as higher legal and professional fees related to risk management, credit and collection related activities. The Company’s residential lending group has produced solid, quality mortgage loan growth in 2009. Greater emphasis on residential lending has increased mortgage originations in the first six months of 2009. A total of 320 applications were accepted in the second quarter 2009 for total loans of $71 million, and 703 applications were taken in the first six months for $165 million. Closed mortgage loans totaled $43 million for the quarter, up $5 million from the first quarter 2009. A total of $24 million in residential mortgage loans were sold in the second quarter of 2009. Over the first six months of 2009, a total of $44 million in residential mortgage loans were sold, and $37 million were added to the portfolio. The Company’s retail core deposit focus has produced strong growth in core deposit customer relationships and has resulted in increased balances, which offset planned run-off in certificates of deposit in the second quarter 2009. The improved deposit mix and lower rates paid on interest bearing deposits during the second quarter reduced the overall cost of total deposits to 1.40 percent, 39 basis points lower than in the first quarter 2009. While total deposits at quarter end June 30, 2009 were lower compared to March 31, 2009, due to normal seasonal decline combined with planned deposit runoff, the mix of deposits improved with average time deposits declining $35.0 million, other lower cost interest bearing NOW and savings deposits increasing $4.4 million or 12.3 percent annualized, and demand deposits increasing $7.3 million or 10.7 percent annualized compared to the first quarter 2009. The average cost of interest bearing core deposits during the second quarter was 0.71 percent, down 39 basis points from the first quarter. Certificates of deposits rates paid were also lower compared to the first quarter and totaled 2.80 percent during the second quarter, a decline of 45 basis points. The average cost of total interest bearing liabilities was down 40 basis points compared to the first quarter at 1.65 percent. Average deposits totaled $1.8 billion for the second quarter 2009, $37 million less than in the first quarter 2009, due to lower average customer balances as the result of normal seasonal declines and a planned reduction of brokered deposits of $36 million. Total average sweep repurchase agreements declined during the quarter, as a result of normal seasonal funding trends for the Company’s public deposit customers. Compared to the prior year, end of period customer sweep repurchase agreements were up $15 million. Total deposits at June 30, 2009 declined $134 million compared to the prior year as a result of deposit declines of $144 million in the Company’s central Florida region caused by slower economic growth. Average noninterest bearing deposits totaled $281.7 million for the second quarter 2009, up $7.4 million or 10.8 percent annualized compared to the first quarter 2009. In addition, core interest bearing deposits totaled $808 million, slightly lower compared to the first quarter as seasonal declines were offset by the successful retail core deposit strategy implemented last year. As previously reported, the Company has experienced strong growth in core deposit customer relationships since implementing the new strategy. A total of 7,072 new households have added 8,928 new personal checking accounts over the last twelve months. These new relationships have improved market share and increased average services per household. In addition, the new relationships have increased their balances at account opening during the first six months by 36 percent to an average of $24,850. Seacoast will host a conference call on July 28, 2009 at 10:00 a.m. (Eastern Time) to discuss the earnings results and business trends. Investors may call in (toll-free) by dialing (866) 712-7678 (access code: 9071890; leader: Dennis S. Hudson, III). Charts will be used during the conference call and may be accessed at Seacoast’s website at www.seacoastbanking.net by selecting “Presentations” under the heading “Investor Services”. A replay of the call will be available for one month, beginning the afternoon of July 28, 2009, by dialing (877) 213-9653 (domestic), using the passcode 9071890. Alternatively, individuals may listen to the live webcast of the presentation by visiting Seacoast’s website at www.seacoastbanking.net. The link is located in the subsection “Presentations” under the heading “Investor Services”. Beginning the afternoon of July 28, 2009, an archived version of the webcast can be accessed from this same subsection of the website, and will be available for one year. Seacoast Banking Corporation of Florida has approximately $2.2 billion in assets. It is one of the largest independent commercial banking organizations in Florida, headquartered on Florida’s Treasure Coast, one of the wealthiest and fastest growing areas in the nation. Cautionary Notice Regarding Forward-Looking Statements This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements about future financial and operating results, cost savings, enhanced revenues, economic and seasonal conditions in our markets, and improvements to reported earnings that may be realized from cost controls and for integration of banks that we have acquired, as well as statements with respect to Seacoast’s objectives, expectations and intentions and other statements that are not historical facts. Actual results may differ from those set forth in the forward-looking statements. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance or achievements of Seacoast to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. You should not expect us to update any forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “support”, “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “further”, “point to,” “project,” “could,” “intend” or other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation: the effects of future economic and market conditions, including seasonality; governmental monetary and fiscal policies, as well as legislative, tax and regulatory changes; changes in accounting policies, rules and practices; the risks of changes in interest rates on the level and composition of deposits, loan demand, liquidity and the values of loan collateral, securities, and interest sensitive assets and liabilities; interest rate risks, sensitivities and the shape of the yield curve; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market areas and elsewhere, including institutions operating regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the Internet; and the failure of assumptions underlying the establishment of reserves for possible loan losses. The risks of mergers and acquisitions, include, without limitation: unexpected transaction costs, including the costs of integrating operations; the risks that the businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies, including as the result of revenues following the merger being lower than expected; the risk of deposit and customer attrition; any changes in deposit mix; unexpected operating and other costs, which may differ or change from expectations; the risks of customer and employee loss and business disruption, including, without limitation, as the result of difficulties in maintaining relationships with employees; increased competitive pressures and solicitations of customers by competitors; as well as the difficulties and risks inherent with entering new markets. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our annual report on Form 10-K for the year ended December 31, 2008 under “Special Cautionary Notice Regarding Forward-Looking Statements” and “Risk Factors”, and otherwise in our SEC reports and filings. Such reports are available upon request from the Company, or from the Securities and Exchange Commission, including through the SEC’s Internet website at http://www.sec.gov. |
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