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| Release Date:October 30, 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FOR IMMEDIATE RELEASE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEACOAST REPORTS RESULTS FOR THIRD QUARTER 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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During the quarter residential construction and land development loan balances were reduced by more than 40 percent. Total construction and land development loans were reduced by more than 25 percent, falling below the Company’s long term objective and below 100 percent of tier one capital and the allowance for loan losses, which is a regulatory threshold associated with institutions having construction and development loan concentrations. “While very painful, we have now reduced our exposure to residential development lending to a nominal level”, said Dennis S. Hudson, III, Chief Executive Officer. “Moreover, the remaining loans in this portfolio have been written down to values that fully reflect the current environment. In addition, as a result of our focus on loan sales and other aggressive liquidation efforts, our aggregate commercial real estate exposure (construction loans and commercial real estate mortgages) has now been reduced below 300 percent of tier one capital and the allowance for loan losses, which is a regulatory threshold associated with institutions having commercial real estate loan concentrations.” After completing a review of internally criticized commercial real estate exposures late in the third quarter, we identified a number of performing loans that we anticipate may not be able to continue to perform in accordance with existing repayment terms. These loans were placed on nonaccrual status and evaluated for impairment. This action together with aggressive loan sales resulted in a significant increase in charge-offs for the quarter and contributed to the increase in nonperforming loans. We anticipate many of these loans will be restructured in the next few months as troubled debt restructures or sold. We believe taking this aggressive action, together with our reduced exposures as described above, will cause our nonaccrual balances to peak at current levels. As a result, we also expect charge-offs to moderate next quarter and to moderate even further thereafter based on the current outlook. Total revenues were up 3.4 percent to $25.1 million for the third quarter 2009 compared to the third quarter 2008. Excluding investment securities gains, revenues totaled $23.7 million for the quarter ended September 30, 2009 or $599,000 lower compared to the same period a year ago. Other items impacting financial results for the third quarter 2009 include:
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 one third of that reported at the high point in 2007, with over $250 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 84 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 $80.5 million to $17.8 million over the past five quarters, all of which 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 12 months. We expect aggregate loss exposure in this portfolio to continue to moderate significantly going forward. Commercial construction and development loans continue to decline and remain well diversified with no single category of exposure exceeding 20 percent of tier 1 capital and the allowance for loan losses. Commercial real estate mortgage loans remain well diversified (as shown in the attached table) with all but three categories of exposure at less than 20 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 65 percent, 68 percent and 40 percent respectively of tier 1 capital and the allowance for loan losses. Approximately 35% of commercial real estate mortgage loans are owner occupied with an average loan-to-value of 50 percent and originated over a wide timeframe. The non-owner occupied portion of the portfolio has an average loan-to-value of 53 percent. While the Company may see further deterioration over time 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 restructurings 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 September 30, 2009
Nonaccruing loans grew by $27.2 million from June 30, 2009 to $154.0 million at September 30, 2009, and accruing restructured loans grew by $1.3 million to $16.1 million over the same period. The growth in nonaccruing loans was also impacted by 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 73 applications were received seeking restructured mortgages, compared to 102 the second quarter, 93 the first quarter and 37 in the fourth quarter of last year. Restructured loans included in nonaccruing loans totaled $36.9 million at September 30, 2009, compared with $33.4 million at June 30, 2009. At September 30, 2009, nonaccruing loans, which totaled $154.0 million, have been written down by approximately $64.6 million or 32 percent of the original loan balance (including specific impairment reserves). Early stage delinquencies increased somewhat during the quarter in the residential mortgage loan portfolio and remained modest or improved in other loan portfolios. Accruing residential mortgage loans (including home equity lines) 30-89 days past due grew to $7.1 million (or 1.3 percent of residential loans) from $3.7 million (or 0.7 percent) and loans 90 days past due continued to be zero on a linked quarter basis. Residential home prices in the Company’s markets and Florida continued to show signs of stability during the quarter as home sales volumes and inventory levels continued to improve, although the rate of unemployment remains high. Other real estate owned (“OREO”) grew by $3.5 million to $26.8 million, 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 final liquidation and resolution of many of the nonaccrual loans is concluded. Income before taxes and the provision for loan losses for the third quarter of 2009 totaled approximately $4.6 million, up from the $4.3 million earned in the second quarter 2009. The negative impact on net interest income from increased nonperforming loans, together with elevated collection costs, were absorbed by an improving net interest margin performance, better deposit mix, reduced overhead as a result of work force reductions, and lower data processing, occupancy and other expenses. The tax benefit for the net loss for the third quarter totaled $15.7 million. The deferred tax valuation allowance was increased by a like amount, and therefore there was no change in the carrying value of deferred tax assets which are supported by tax planning strategies. Due to limitations on the inclusion of deferred tax assets, regulatory capital ratios are unaffected by the reduced tax benefit for the quarter. Should the economy show signs of improvement and our credit losses moderate, we anticipate that we could place increased reliance on our forecast of future taxable earnings, which would result in realization of future tax benefits. Net interest income (on a tax equivalent basis) was $19.1 million, up $114,000 or 2.4 percent annualized from the second quarter 2009 as a result of lower deposit costs and lower rates paid on most interest bearing liabilities, increased yield on investments, partially offset by a decline of $61 million in average outstanding loans, lower loan yields and higher nonperforming loans. The net interest margin, which totaled 3.74 percent, increased 9 basis points compared to the second quarter 2009, and was 17 basis points higher than in third quarter 2008. Noninterest income, totaled $6.1 million, down $539,000 linked quarter, primarily due to lower gains on securities sales as well as lower revenue related to seasonal declines in fees from merchant services, marine finance fees, mortgage banking fees and brokerage commissions and fees. The revenue declines from these sources were partially offset by higher revenues from service charges on deposits, the result of the growth in new deposit households. In addition, wealth management and marine finance fees continue to be impacted by the challenging economic conditions. Noninterest expenses for the third quarter totaled $20.5 million, lower by $719,000 compared to the second quarter 2009 (excluding the write-off for goodwill impairment of $49.8 million), primarily the result of higher FDIC insurance costs due to a special assessment in the second quarter 2009. Salaries, wages and benefits for the third quarter 2009 declined $1,523,000 or 16.1 percent from a year ago, and were $3.5 million lower for the first nine months of 2009 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, occupancy, and furniture and equipment all declining compared to the prior year. Increasing this quarter were costs associated with foreclosed and repossessed asset disposition and management activities, which increased by $625,000 compared to the second quarter 2009 and totaled $2.1 million. Also increasing this quarter were legal and professional fees related to risk management, credit and collection related activities. Management has been focused and aggressive in resolving troubled loans and are confident that its early identification and actions will lead to lower future costs as exposures are reduced. 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 brokered certificates of deposit in the third quarter 2009. The improved deposit mix and lower rates paid on deposits during the third quarter reduced the overall cost of total deposits to 1.24 percent, 16 basis points lower than in the second quarter 2009 and 96 basis points below last year’s third quarter. Increased emphasis on residential lending has increased mortgage originations in the first nine months of 2009. A total of 236 applications were accepted in the third quarter 2009 for total loans of $43 million, and 966 applications were taken in the first nine months for $206 million. Closed mortgage loans totaled $28 million for the quarter, compared to $43 million in the second quarter and $38 million for the first quarter 2009. A total of $28 million in residential mortgage loans were sold in the third quarter of 2009. Over the first nine months of 2009, a total of $72 million in residential mortgage loans were sold, and $37 million were added to the portfolio. Total deposits at quarter end September 30, 2009 were up compared to June 30, 2009, attributable to continued growth as a result of a strategic focus on increasing market share. Total deposits, excluding brokered certificates of deposits at September 30, 2009, totaled $1,706 million and were just $4 million lower compared to year-end 2008 total deposits. Historically, the Company’s deposits experience a seasonal decline in the third quarter compared to the other quarters. Instead deposit growth (excluding brokered certificates of deposits) during the third quarter was 3.2 percent annualized. The average cost of interest bearing core deposits during the third quarter was 0.58 percent, down 13 basis points from the second quarter. During the third quarter, certificates of deposits rates paid were also 35 basis points lower than in the second quarter and totaled 2.45 percent. The average cost of total interest-bearing liabilities of 1.50 percent declined by 15 basis points from the second quarter. Compared to the prior year’s third quarter customer, sweep repurchase agreements were down $2.5 million. Total deposits at September 30, 2009 declined $77.5 million compared to the prior year, as a result of deposit declines in the Company’s central Florida region caused by slower economic growth. This region’s deposit decline reversed trend during the third quarter 2009 and should contribute to total deposit growth going forward. As previously reported, the Company has experienced strong growth in core deposit customer relationships since implementing its new deposit growth strategy. A total of 1,622 new core households were added in the third quarter 2009, 10.2 percent higher than the second quarter 2009. This compares to 1,566 in third the quarter 2008, and 1,539 in the third quarter 2007. These new relationships have improved market share and increased average services per household. Seacoast now has the number two market share ranking in its Treasure Coast market. Seacoast will host a conference call on October 30, 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: 8397217; leader: Dennis S. Hudson). 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 October 30, 2009, by dialing (877) 213-9653 (domestic), using the passcode 8397217. 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 October 30, 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 $2.1 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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