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Stuart, FL., January 28, 2010 – Seacoast Banking Corporation of Florida (NASDAQ-NMS: SBCF) today reported a fourth quarter net loss of $36.1 million compared with a net loss of $22.6 million for the fourth quarter of 2008. Including preferred stock dividends and accretion of discount of $937,000, the net loss applicable to common shareholders was $37.1 million or $0.69 per average common diluted share for the fourth quarter compared to a net loss of $22.7 million or $1.19 per average common diluted share for the fourth quarter of 2008.
During the quarter, we reduced large loan concentrations to more acceptable levels, which also produced a significant decline in the level of nonperforming loans and assets. Loan charge-offs were higher than anticipated due to the achievement of higher levels of loan sales. Continued aggressive collection and liquidation efforts, as well as the sale of approximately $68 million in problem assets during the quarter, helped reduce nonperforming loans by more than 36 percent. Nonperforming assets fell to 5.72 percent of assets at year end.
The Company’s capital position remains strong with a total risk-based capital ratio of approximately 15.2 percent at year-end 2009, compared to 16.2 percent at September 30, 2009 and 12.2 percent at December 31, 2008. In August 2009, the Company completed a common stock offering with gross proceeds of $89 million.
Over the past two years, the Company has aggressively reduced its exposure to construction and development loans in response to significant value declines for Florida real estate. Total construction and land development loans which peaked at 272 percent of tier 1 capital and the allowance for loan losses has been reduced to 68 percent at year-end. Total CRE exposure which peaked at 488 percent of tier 1 capital and the allowance for loan losses has been reduced to 295 percent. These levels are now below regulatory benchmarks for institutions having higher concentrations in construction or commercial real estate loans.
“Last quarter we reported that we had completed our goal of reducing our exposure to residential development loans and that nonaccrual loans had likely peaked”, said Dennis S. Hudson, III, Chairman and Chief Executive Officer. “This quarter our nonaccrual loans declined by 36.4 percent as our stronger capital base allowed us to increase our effort to reduce and resolve nonperforming loans through loan sales and by working with distressed borrowers. While painful, our comprehensive approach to lower the Company’s credit risk profile as quickly as possible has been successful. The number of large balance exposures was materially reduced during 2009, and as a result we expect lower loss severity and loss volatility going forward,” added Mr. Hudson.
Based on a significant reduction in larger balance problem loans and reductions in classified loan balances evidenced since June of 2009, the Company expects the deterioration of problem credits to moderate and, as a result, loan charge-offs are expected to decline significantly in the upcoming quarter.
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.
Construction and Land Development Loans
Dec. 30, 2008 Mar. 31, 2009 June 30, 2009 Sept. 30, 2009 Dec. 31,
2009
Dollars in millions High Point
Residential $351.6 3/31/2007 $129.9 $117.2 $96.7 $57.6 $47.6
Commercial 242.4 12/31/2007 209.3 201.4 166.8 128.7 77.5
Individuals 91.3 12/31/2006 56.0 50.2 44.2 41.8 37.8
TOTAL 627.0 9/30/2007 $395.2 $368.8 $307.7 $228.1 $162.9
Total as a percentage f total oloans 23.6% 22.6% 19.4% 15.2% 11.7%
Total as a of tier 1 risk-based capital and Allowance for loan Losses 164.7% 154.5% 133.6% 83.6% 67.8%
Liquidation of the construction and land development loan portfolio continued in the current quarter with commercial construction loans declining significantly by $51.2 million or 39.8 percent to $77.5 million. Overall liquidation of both the residential and commercial components of the construction portfolios has been achieved through early recognition of the potential for portfolio weakness in early 2007 as the housing market began to decline, as well as aggressive collection and liquidation activities with borrowers and the sale of a number of larger problem loans. Total construction and land development loans have been reduced to approximately one quarter of that reported at the high point in 2007, and a substantial portion of the remaining portfolio is currently classified nonaccrual, and is now in the process of liquidation in accordance with specific workout plans designed to achieve substantial liquidation in an orderly fashion over the next year.
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 55 percent, 68 percent and 37 percent, respectively, of tier 1 capital and the allowance for loan losses. 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
Nonperforming assets declined substantially during the quarter due to a slowing of the deterioration of loans and the sale of approximately $68 million in nonperforming loans. The sale of loans included approximately $35 million in noncurrent or restructured residential mortgage loans. Total restructured loans grew substantially due to our focus on early intervention loss mitigation strategies in connection with several larger locally based commercial real estate mortgage borrowers. These restructures are supported with current cash flow projections supporting debt service requirements.
Nonaccrual Loans
December 31, 2009
Nonaccrual Loans Restructured
Loans (Accruing)
Dollars in thousands Non Current Current* Total
Construction and land development
Residential $ 14,638 $ 13,387 $ 28,025 $ 4,867
Commercial 30,013 0 30,013 0
Individual 1,515 256 1,771 1,056
Residential Mortgage 8,944 3,846 12,790 9,833
Commercial Real Estate Mortgage 13,503 10,361 23,864 40,678
Commercial and Financial 210 326 536 0
Installment loans to individuals 877 0 877 999
TOTAL $ 69,700 $ 28,176 $ 97,876 $ 57,433
*Loans classified as nonaccrual (including restructured loans) and less than 30 days past due.
Nonaccruing loans fell during the quarter by $56 million to $98 million at year end, a reduction of 36.4 percent. During the quarter, nonaccruing and restructured residential mortgage loans fell significantly due to the previously mentioned loan sale and a significant reduction in new problem loans, including a significant reduction in customers seeking restructured mortgages. A total of 48 applications for residential mortgage modification were received in the final quarter of 2009, compared with 73 in the third quarter and 102 in the second quarter of the year.
Early stage delinquencies improved or remained stable for all portfolios during the quarter. Accruing residential mortgage loans (including home equity lines) 30-89 days past due totaled $5.7 million (or 1.1 percent of residential loans) compared to $7.1 million in the prior quarter. Commercial real estate and construction and land development loans 30-89 days past due totaled $2.2 million (or 0.3 percent) compared to $3.0 million in the prior quarter. Loans 90 days or more past due, not on nonaccrual, continued to be nominal for all portfolios.
Liquidity remains strong and stable, supported by the Bank’s diverse local retail and commercial deposit base with no overnight borrowings. The Company’s outstanding wholesale funding represents approximately 6.6 percent of total assets at year-end 2009, comprised of longer term Federal Home Loan Bank advances, subordinated debt and a small and declining portfolio of brokered certificates of deposit. During July 2008, the Company tested its ability to access the brokered certificates of deposit market. In addition, during the second half of 2008 and the year 2009, some the Bank’s existing customers utilized the CDARS program to obtain 100 percent FDIC insurance coverage for larger balance certificate of deposits which are required to be classified as brokered certificates of deposit. Brokered certificates of deposit totaled approximately $39 million at year end.
During the fourth quarter of 2008, the Company undertook a comprehensive review of its expense structure and developed a plan to reduce expenses. Reductions in overhead totaled $6.0 million in 2009, but were offset with higher credit related expenses and higher FDIC insurance assessments. The expense reductions during 2009 included: reduced salaries and employee benefits, outsourced data processing, furniture and equipment and marketing costs. Total noninterest expenses for the year ended 2009 (excluding noncash goodwill impairment) totaled $81.9 million, an increase of $3.0 million compared with 2008. Excluding net losses on OREO and other one-time expenditures, other operating expenses declined to $17.7 million in the fourth quarter, $2.4 million or 12.1 percent lower on a comparable basis to the fourth quarter last year.
Net interest income (on a tax equivalent basis) was $17.5 million for the fourth quarter 2009, the same as the fourth quarter 2008, but $1.6 million below third quarter 2009 as a result of a decline in loans and lower loan and investment yields. These adverse impacts were partially offset by reduced deposit costs, and produced higher net interest margin, which totaled 3.37 percent, up 5 basis points in the fourth quarter 2009, compared with 3.32 percent for the same quarter 2008, but lower than the 3.74 percent for the third quarter 2009.
Average loans outstanding (net of unearned income) during the fourth quarter 2009 were $260 million lower than the same quarter of 2008, and ending loans (net of unearned income) were $279 million or 16.7 percent lower than a year ago. The yield on loans in the fourth quarter 2009 was 50 basis points lower than the same period in 2008, reflecting the impact of higher average nonperforming and restructured loans. Average noninterest bearing deposits in the fourth quarter 2009 declined by $1.2 million, compared to the same period in 2008, but increased by $1.6 million compared to the third quarter 2009. Average interest bearing deposits in the fourth quarter totaled $1.52 billion, $44 million lower when compared to the same quarter for 2008, primarily as a result of a decline in brokered certificates of deposits. More recently, average interest bearing deposits increased $55.3 million during the fourth quarter 2009 compared with the third quarter of 2009. Average balances for certificates of deposits increased by $18 million compared to the third quarter to $711 million during the fourth quarter of 2009. The average rate paid in the fourth quarter 2009 for certificates of deposits was 2.20 percent, 139 basis points lower than the rate paid for the same period in 2008. The average cost of interest bearing liabilities for the fourth quarter 2009 totaled 1.38 percent, down 114 basis points from the fourth quarter of 2008, and the average cost of deposits declined 98 basis points to 1.15 percent when compared with the same period for 2008.
As reported throughout the year, the Company has been executing a retail core deposit strategy and has experienced strong growth in core deposit customer relationships when compared to the prior year’s results. Outstanding balances for noninterest bearing demand and savings accounts (including money market balances) increased during the fourth quarter by 7 and 25 percent annualized, respectively. These relationship balances have increased as a result of the retail deposit growth strategy, which has improved market share, increased average services per household and decreased customer attrition. Retail and commercial core deposits (total deposits excluding certificates of deposit greater than $100,000, brokered certificates and deposits from local governments) increased to $1.35 billion at year end, up $38.8 million or 3.0 percent (or 11.9 percent annualized) during the fourth quarter. Total deposits excluding brokered certificates increased by $30.8 million or 1.8 percent for the year ended 2009.
Other highlights for the total year and fourth quarter 2009:
- Loan loss reserves remained strong at 3.09 percent of total loans compared to 1.75 percent of total loans at the end of the prior year;
- Residential loans in the process of foreclosure declined $10.3 million from the third quarter 2009 to $2.7 million at the end of the year;
- Internally criticized and classified loans, which grew significantly over the past two years as a result of deteriorating market conditions, have declined steadily since June 30, 2009;
- Net interest income totaled $73.8 million for the year, and the net interest margin was 3.55 percent, only 3 basis points lower than the prior year.
Earnings (before the provision for loan losses and taxes) for the quarter totaled approximately $3.4 million, down from $4.6 million in the third quarter 2009, the result of lower net interest income of $1.6 million and increased costs associated with one-time consulting projects and branch closures, up $1.5 million over the third quarter. It is expected that net interest income will benefit from the improved deposit mix and deposit re-pricing, offset by negative loan growth and declining asset yields. Pre-provision earnings are expected to remain in the $4 million range per quarter in 2010, provided the elevated credit costs are lower as a result of reduced problem assets.
Noninterest expenses totaled $20.9 million, increasing $135,000 from the prior year’s fourth quarter and $362,000 greater than the third quarter of 2009. Professional fees associated with strategic planning assistance and losses on closed branch facilities in the fourth quarter 2009 added $832,000 and $905,000, respectively, to total expenses compared to a year ago. The Company believes that the higher level of legal costs experienced this year should begin to decline in 2010, as the majority of loans which have accounted for these elevated expense levels have been significantly reduced.
The tax benefit for the net loss for the fourth quarter totaled $13.9 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 support realization of the third and fourth quarter deferred tax assets and increase the Company’s common shareholders’ equity by up to $29.6 million.
Noninterest income, excluding securities gains and losses, declined 4.7 percent when compared to the fourth quarter of 2008, reflecting decreased revenues primarily from wealth management fees, marine finance fees, and service charges on deposits, offset by increases in mortgage banking and debit card fees. The tight credit markets were responsible for much lower marine finance activities. A more stable residential market and improved home affordability accounted for increased residential mortgage applications and closings in 2009. Merchant income, wealth management, and other revenue tied to transaction volumes were all lower as a result of the economic recession. The Company expects these revenue sources to be weaker until the economy in its markets begins to improve.
Seacoast will host a conference call on Friday, January 29, 2010 at 9:30 a.m. (Eastern Time) to discuss the earnings results and business trends. Investors may call in (toll-free) by dialing (888) 517-2464 (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 January 29, by dialing (877) 213-9653 (domestic), using the passcode 8397217. Alternatively, individuals may listen to the live audio 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 January 29, 2010, an archived version of the webcast can be accessed from this same subsection of the website. The archived webcast 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, ability to realized deferred tax assets, 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 and in our quarterly report on Form 10-Q/A for the period ending September 30, 2009 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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