UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-13660

Seacoast Banking Corporation of Florida

(Exact Name of Registrant as Specified in its Charter)

Florida		59-2260678
(State or Other Jurisdiction of Incorporation or Organization		(I.R.S. Employer Identification No.)

815 COLORADO AVENUE, STUART FL		34994
(Address of Principal Executive Offices)		(Zip Code)

(772) 287-4000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Small Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

 

 

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (the “Amendment”) amends the Seacoast Banking Corporation of Florida (“Seacoast”) Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (the “Report”), which was originally filed with the U.S. Securities and Exchange Commission on November 9, 2009 (the “Original Form 10-Q”). This Amendment is being filed solely for the purpose of correcting a typographical error contained in Exhibits 32.1 and 32.2 of the Original Form 10-Q. The introductory paragraph in Exhibits 32.1 and 32.2 as originally filed contained a reference to the “quarter ended June 30, 2009” as opposed to the “quarter ended September 30, 2009”. This Amendment corrects that error.

This Amendment sets forth the full text of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 in its entirely. However, this Amendment does not affect the original financial statements or footnotes set forth in the Original Form 10-Q.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by our principal executive officer and principal financial officer (Exhibits 31.1 and 31.2) are filed as exhibits to this Amendment under Item 6 hereof.

This Amendment does not reflect events occurring after the filing of the Original Form 10-Q and no attempt has been made in this Amendment to modify or update other disclosures affected by subsequent events. Accordingly, this Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Form 10-Q.

INDEX

SEACOAST BANKING CORPORATION OF FLORIDA

		PAGE #
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets – September 30, 2009 and December 31, 2008			3
Condensed consolidated statements of income – Three months and nine months ended September 30, 2009 and 2008			4
Condensed consolidated statements of cash flows – Nine months ended September 30, 2009 and 2008			5-6
Notes to condensed consolidated financial statements			7-22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23-66
Item 3. Quantitative and Qualitative Disclosures about Market Risk			67
Item 4. Controls and Procedures			68
Part II OTHER INFORMATION
Item 1. Legal Proceedings			68
Item 1A. Risk Factors			68-83
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			84
Item 3. Defaults upon Senior Securities			84
Item 4. Submission of Matters to a Vote of Security Holders			84
Item 5. Other Information			84
Item 6. Exhibits			85
SIGNATURES			86
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Part I. FINANCIAL INFORMATION

Item 1.		FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

Seacoast Banking Corporation of Florida and Subsidiaries

		September 30,				December 31,
(Dollars in thousands, except share amounts)		2009				2008
ASSETS
Cash and due from banks		$	32,515			$	46,002
Interest bearing deposits with other banks			137,640				100,585
Federal funds sold			0				4,605
Total cash and cash equivalents			170,155				151,192
Securities:
Available for sale (at fair value)			342,742				318,030
Held for investment (fair values:						$	18,870
at September 30, 2009 and $26,109 at December 31, 2008)			19,296				27,871
TOTAL SECURITIES			362,038				345,901
Loans held for sale			5,857				2,165
Loans			1,504,566				1,676,728
Less: Allowance for loan losses			(48,850	)			(29,388	)
NET LOANS			1,455,716				1,647,340
Bank premises and equipment, net			42,143				44,122
Other real estate owned			26,819				5,035
Goodwill and other intangible assets			4,436				55,193
Other assets			72,751				63,488
		$	2,139,915			$	2,314,436
LIABILITIES
Deposits		$	1,761,287			$	1,810,441
Federal funds purchased and securities sold under agreements to repurchase, maturing within 30 days			68,797				157,496
Borrowed funds			65,053				65,302
Subordinated debt			53,610				53,610
Other liabilities			10,844				11,586
			1,959,591				2,098,435
SHAREHOLDERS’ EQUITY
Preferred stock, par value $0.10 per share, authorized 4,000,000 shares, issued and outstanding 2,000 shares of Series A			44,686				43,787
Warrant for purchase of shares of common stock at $6.36 per share			3,123				6,245
Common stock, par value $0.10 per share, authorized 65,000,000 shares, issued 52,923,151 and outstanding 52,849,625 shares at September 30, 2009, issued 19,283,841 and outstanding 19,171,779 shares at December 31, 2008			5,292				1,928
Other shareholders’ equity			127,223				164,041
TOTAL SHAREHOLDERS’ EQUITY			180,324				216,001
		$	2,139,915			$	2,314,436

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

Seacoast Banking Corporation of Florida and Subsidiaries

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in thousands, except per share data)		2009				2008				2009				2008
Interest and fees on loans		$	20,836			$	27,146			$	65,634			$	86,525
Interest and dividends on securities			4,349				3,508				12,728				10,805
Interest on federal funds sold and other investments			163				322				420				1,074
TOTAL INTEREST INCOME			25,348				30,976				78,782				98,404
Interest on deposits			5,416				10,367				19,597				33,579
Interest on borrowed money			881				1,492				3,040				5,061
TOTAL INTEREST EXPENSE			6,297				11,859				22,637				38,640
NET INTEREST INCOME			19,051				19,117				56,145				59,764
Provision for loan losses			45,374				10,241				83,253				57,978
NET INTEREST (LOSS) INCOME AFTER PROVISION FOR LOAN LOSSES			(26,323	)			8,876				(27,108	)			1,786
Noninterest income
Other income			4,627				5,160				14,414				17,411
Securities gains, net			1,425				0				3,211				355
TOTAL NONINTEREST INCOME			6,052				5,160				17,625				17,766
Noninterest Expenses
Goodwill impairment			0				0				49,813				0
Other noninterest expenses			20,506				19,986				61,066				58,157
TOTAL NONINTEREST EXPENSES			20,506				19,986				110,879				58,157
LOSS BEFORE INCOME TAXES			(40,777	)			(5,950	)			(120,362	)			(38,605	)
Benefit for income taxes			0				(2,502	)			(11,825	)			(15,604	)
NET LOSS			(40,777	)			(3,448	)			(108,537	)			(23,001	)
Preferred stock dividends and accretion of preferred stock discount			937				0				2,811				0
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS		$	(41,714	)		$	(3,448	)		$	(111,348	)		$	(23,001	)
PER SHARE COMMON STOCK:
Net loss diluted		$	(1.21	)		$	(0.18	)		$	(4.58	)		$	(1.21	)
Net loss basic			(1.21	)			(0.18	)			(4.58	)			(1.21	)
Cash dividends declared			0.00				0.01				0.01				0.33
Average shares outstanding — diluted			34,571,200				19,030,758				24,299,915				18,981,944
Average shares outstanding — basic			34,571,200				19,030,758				24,299,915				18,981,944

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Seacoast Banking Corporation of Florida and Subsidiaries

		Nine Months Ended
		September 30,
(Dollars in thousands)		2009				2008
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Interest received		$	78,178			$	98,436
Fees and commissions received			14,508				17,397
Interest paid			(22,716	)			(39,094	)
Cash paid to suppliers and employees			(55,110	)			(53,031	)
Income taxes paid			(14	)			(3,481	)
Trading securities activity			0				14,000
Origination of loans held for sale			(129,233	)			(161,231	)
Proceeds of loans held for sale			125,541				162,190
Net change in other assets			562				470
Net cash provided by operating activities			11,716				35,656
Cash flows from investing activities
Maturities of securities available for sale			74,683				23,244
Maturities of securities held for investment			8,589				2,775
Proceeds from sale of securities available for sale			56,663				13,391
Purchases of securities available for sale			(147,506	)			(52,593	)
Net new loans and principal repayments			70,514				57,294
Proceeds from sale of loans			10,755				47,147
Proceeds from the sale of other real estate owned			3,105				533
Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank stock			181				0
Purchase of Federal Home Loan Bank and Federal Reserve Bank stock			(1,276	)			(174	)
Additions to bank premises and equipment			(666	)			(4,881	)
Net cash provided by investing activities			75,042				86,736
Cash flows from financing activities
Net decrease in deposits			(49,142	)			(148,515	)
Net decrease in federal funds purchased and repurchase agreements			(88,699	)			(16,775	)
Issuance of common stock, net of related expense			70,466				0
Stock based employee benefit plans			160				897
Dividends paid			(580	)			(6,291	)
Net cash used in financing activities			(67,795	)			(170,684	)
Net increase (decrease) in cash and cash equivalents			18,963				(48,292	)
Cash and cash equivalents at beginning of period			151,192				98,475
Cash and cash equivalents at end of period		$	170,155			$	50,183

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries

		Nine Months Ended
		September 30,
(Dollars in thousands)		2009				2008
Reconciliation of net loss to cash provided by operating activities
Net loss		$	(108,537	)		$	(23,001	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on impairment of goodwill			49,813				0
Depreciation			2,637				2,553
Amortization (accretion) of premiums and discounts on securities, net			(1,193	)			(401	)
Other amortization and accretion			822				349
Trading securities activity			0				14,000
Change in loans held for sale, net			(3,692	)			959
Provision for loan losses			83,253				57,978
Gains on sale of securities			(3,211	)			(355	)
Gains on sale of loans			(67	)			(45	)
Losses on sale and write-downs of other real estate owned			2,264				315
Losses (gains) on disposition of fixed assets			8				(103	)
Change in interest receivable			710				1,028
Change in interest payable			(79	)			(454	)
Change in prepaid expenses			502				89
Change in accrued taxes			(10,909	)			(18,370	)
Change in other assets			562				470
Change in other liabilities			(1,167	)			644
Net cash provided by operating activities		$	11,716			$	35,656
Supplemental disclosure of non-cash investing activities:
Fair value adjustment to available for sale securities		$	4,004			$	(3,859	)
Transfer of loans to other real estate owned			27,278				4,664

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U. S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

Use of Estimates

The preparation of these condensed consolidated 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.

The accounting policies that are particularly sensitive to judgments and the extent to which significant estimates are used include allowance for loan losses and the reserve for unfunded lending commitments, fair value of certain financial instruments, goodwill impairment, realization of deferred tax assets, and contingent liabilities.

The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate there may be impairment. The Company engages external valuation specialists to assist in the Company’s goodwill assessments. The Company completed an annual test of goodwill for impairment for the year ended December 31, 2008. Management updated the test for impairment of goodwill at March 31, 2009 due to the decline in the price of the Company’s common stock and net earnings in the first quarter of 2009. The results of these tests indicated that none of the Company’s goodwill was impaired. Due to the further decline in the price of the Company’s common stock and the Company’s net loss in the second quarter of 2009, we again tested for impairment of goodwill as of June 30, 2009. The fair value of the Company’s enterprise was determined using two methods, the discounted cash flow and change in control valuation methods. These two methods provided a range of valuations of $2.43 to $7.00 per share that we used in evaluating goodwill for possible impairment. As of June 30, 2009, the Company determined that the carrying amount of the Company exceeded its fair value and that the entire amount of goodwill was impaired based on a preliminary step two goodwill analysis. At September 30, 2009, the Company completed its step two analysis of goodwill impairment which supported the conclusion reached at June 30, 2009.

NOTE B — RECENT ACCOUNTING STANDARDS

FASB Accounting Standards Update No. 2009-01, “Topic 105-Generally Accepted Accounting Principles-amendments based on Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a Replacement of FASB Statement No. 162,” (“ASU 2009-01”)

ASU 2009-01 replaces FAS 162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative guidance for SEC registrants. All guidance contained in the Codification carries an equal level of authority. All non-grandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed non-authoritative. ASU 2009-01 was effective for the Company’s financial statements for periods ending after September 15, 2009 and did not have a significant impact on the Company’s consolidated financial statements.

Accounting Standards Codification 805, “Business Combinations” (“ASC 805” and formerly Statement of Financial Accounting Standards No. 141, “Business Combinations (Revised 2007),”(“FAS 141R”))

FAS 141R was codified by the FASB as ASC 805 as a replacement to Statement of Financial Accounting Standards No. 141, “Business Combinations,” (“FAS 141”) and applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquired at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process previously required whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. ASC 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed. Under ASC 805, the requirements of FASB Accounting Standards Codification 420, “Exit or Disposal Cost Obligations,” (formerly Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”) would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of FASB Accounting Standards Codification 450, “Contingencies” (formerly Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies”). ASC 805 is applicable to the Company’s accounting for business combinations closing on or after January 1, 2009.

Statement of Financial Accounting Standards No. 160, “Non-controlling Interest in Consolidated Financial Statements — An Amendment of ARB No. 51” (“FAS 160”)

Issued during 2007, FAS 160 was codified by FASB into Accounting Standards Codification 810, “Consolidations,” to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, consolidated net income is required to be reported at amounts that included the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. The Company adopted this guidance as of January 1, 2009, and it did not have a significant impact on the Company’s consolidated financial statements.

Accounting Standards Codification 815-10-50 “Derivatives and Hedging — Disclosures” (“ASC 815-10-50” and formerly Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,” (“FAS 161”)

FAS 161 was codified by FASB as ASC 815-10-50 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under FASB Accounting Standards Codification 815, “Derivatives and Hedging” and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, ASC 815-10-50 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. ASC 815-10-50 was effective for the Company as of January 1, 2009. It did not have a significant impact on the Company’s financial statements.

Financial Accounting Standards Board Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly” (“FSP 157-4”)

FSP 157-4 was codified by FASB into the FASB Accounting Standards Codification 820 “Fair Value Measurements.” (“ASC 820”). It was issued April 9, 2009 to provide guidance for determining fair value when there is no active market or where price inputs represent distressed sales. It reaffirms the fair value measurement objective that fair value represents how much an asset would be sold for in an orderly transaction under current market conditions. The guidance was effective for interim and annual periods ending after June 15, 2009. Early adoption for interim and annual periods ending after March 15, 2009 was permitted. The Company adopted this guidance as of June 30, 2009. It did not have a significant impact on the Company’s consolidated financial statements.

Financial Accounting Standards Board Staff Position No. FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP No. 115 -2”)

FSP 115-2 was codified by FASB into the FASB Accounting Standards Codification 320, “Investments - Debt and Equity Securities.” It was issued April 9, 2009 to provide additional guidance and create greater clarity and consistency in accounting for impairment losses on securities. It replaces the assertion of intent and ability to hold an impaired debt security until fair value recovers with assertions that the holder does not intend to sell the security prior to recovery and that it is more likely than not that the holder will not be required to sell the impaired security prior to recovery. The full impairment loss is recognized in earnings if the holder is unable to make these assertions. Otherwise, a credit loss portion of the impairment is recognized in earnings and the remaining impairment is recognized in other comprehensive income (equity). Both the full impairment and credit loss portion are presented on the face of the income statement. The guidance is effective for interim and annual periods ending after June 15, 2009 and requires additional disclosures in interim periods. Early adoption for interim and annual periods ending after March 15, 2009 was permitted. The Company adopted this guidance as of June 30, 2009. It did not have a significant impact on the Company’s consolidated financial statements.

FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1”)

FSP 107-1 was codified into the FASB Accounting Standards Codification 820, “Fair Value Measurements” (“ASC 820”) and enhances consistency in financial reporting by increasing the frequency of fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. It requires disclosures in interim financial statements that were previously only required in annual financial statements to provide qualitative and quantitative information about fair value estimates. The guidance included in ASC 820 was effective for interim and annual periods ending after June 15, 2009. Early adoption for interim and annual periods ending after March 15, 2009 was permitted. The Company adopted the guidance included in ASC 820 as of June 30, 2009. It did not have a significant impact on the Company’s consolidated financial statements.

Financial Accounting Standards Board Staff Position No. EITF 03-6-1 “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP No. EITF 03-6-1”)

FSP No. EITF 03-6-1 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP No. EITF 03-6-1 became effective on January 1, 2009 and was codified by FASB into the Accounting Standards Codification 260, “Earnings Per Share.” It did not have a significant impact on the Company’s consolidated financial statements.

Accounting Standards Codification 855 “Subsequent Events” (“ASC 855” and formerly Statement of Financial Accounting Standards No. 165, “Subsequent Events” (“FAS 165”)

On May 28, 2009, the FASB issued FAS 165 to provide authoritative accounting guidance on management’s assessment of subsequent events. FAS 165 was codified by FASB into ASC 855 which incorporates existing U.S. auditing literature and clarifies that management is responsible for evaluating, as of each reporting period, events or transactions that occur after the balance sheet date through the date that the financial statements are issued or are available to be issued. ASC 855 was effective for the Company as of June 30, 2009 and did not have a significant impact on the Company’s financial statements.

Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial Assets - an amendment to Statement No. 140,” (“FAS 166”)

FAS 166 amends FAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. FAS 166 eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. FAS 166 also requires additional disclosures about all continuing involvement with transferred financial assets including information about gains and losses resulting from transfers during the period. FAS 166 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements. The FASB has not yet codified FAS 166.

Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R),” (“FAS 167”)

FAS 167 amends FIN 46 (Revised December 2003), “Consolidation of Variable Interest Entities,” to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. FAS 167 requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. FAS 167 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s consolidated financial statements. The FASB has not yet codified FAS 167.

Accounting Standards Update No. 2009-05, “Topic 820 — Fair Value Measurements and Disclosures - Measuring Liabilities at Fair Value” (“ASU 2009-05”)

ASU 2009-05 provides clarification that the fair value measurement of liabilities in which a quoted price in an active market for the identical liability is not available should be developed based on a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or another valuation technique that is consistent with the principles of Topic 820 — Fair Value Measurements and Disclosures. ASU 2009-05 also clarifies that there is no requirement to adjust the fair value related to the existence of a restriction that prevents the transfer of the liability and that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This guidance was effective for the Company as of September 30, 2009 and did not have a significant impact on the Company’s consolidated financial statements.

Accounting Standards Update No. 2009-12, “Topic 820 — Fair Value Measurements and Disclosures - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2009-12”)

ASU 2009-12 permits, as a practical expedient, fair value of an investment that is within the scope of the ASU such as hedge funds, private equity funds, real estate funds, venture capital funds, offshore fund vehicles and fund of funds to be measured based on the net asset value of the investment or its equivalent as of the reporting entity’s measurement date. It also requires certain disclosures including any restrictions on the investor’s ability to redeem its investments at the measurement date, any unfunded commitments and the investment strategies of the investees. ASU 2009-12 is effective for interim and annual periods ending December 15, 2009. Early application is permitted. The Company will adopt ASU 2009-12 as of December 31, 2009 and it is not expected to have a significant impact on the Company’s consolidated financial statements.

NOTE C — COMPREHENSIVE INCOME (LOSS)

At September 30, 2009 and 2008, comprehensive income (loss) was as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in thousands)		2009				2008				2009				2008
Net loss		$	(40,777	)		$	(3,448	)		$	(108,537	)		$	(23,001	)
Unrealized gains (losses) on securities available for sale (net of tax)			2,851				(2,426	)			3,497				(2,265	)
Net reclassification adjustment			(908	)			0				(1,047	)			(138	)
Comprehensive loss		$	(38,834	)		$	(5,874	)		$	(106,087	)		$	(25,404	)

NOTE D — BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

Equivalent shares of 558,000 and 918,000 related to stock options and stock settled appreciation rights for the periods ended September 30, 2009 and 2008, respectively, were excluded from the computation of diluted EPS because they would have been anti-dilutive.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in thousands, except per share data)		2009				2008				2009				2008
Basic:
Net loss available to common shareholders		$	(41,714	)		$	(3,448	)		$	(111,348	)		$	(23,001	)
Average shares outstanding			34,571,200				19,030,758				24,299,915				18,981,944
Basic EPS		$	(1.21	)		$	(0.18	)		$	(4.58	)		$	(1.21	)
Diluted:
Net loss available to common shareholders		$	(41,714	)		$	(3,448	)		$	(111,348	)		$	(23,001	)
Average shares outstanding			34,571,200				19,030,758				24,299,915				18,981,944
Net effect of employee restricted stock, stock options and stock settled appreciation rights			0				0				0				0
TOTAL			34,571,200				19,030,758				24,299,915				18,981,944
Diluted EPS		$	(1.21	)		$	(0.18	)		$	(4.58	)		$	(1.21	)

NOTE E — FAIR VALUE INSTRUMENTS MEASURED AT FAIR VALUE

In certain circumstances, fair value enables the Company to more accurately align its financial performance with the market value of actively traded or hedged assets and liabilities. Fair values enable a company to mitigate the non-economic earnings volatility caused from financial assets and financial liabilities being carried at different bases of accounting, as well as to more accurately portray the active and dynamic management of a company’s balance sheet. The FASB issued ASC 820, formerly FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active on October 10, 2008. In April 2009, the FASB issued ASC 820, formerly FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, and it provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased. In addition, it includes guidance on identifying circumstances that indicate a transaction is not orderly. Under ASC 820, fair value measurements for items measured at fair value at September 30, 2009 and 2008 included:

						Quoted Prices
						in Active				Significant
						Markets for				Other				Significant
						Identical				Observable				Unobservable
		Fair Value				Assets				Inputs				Inputs
(Dollars in thousands)		Measurements				(Level 1)				(Level 2)				(Level 3)
September 30, 2009
Available for sale securities		$	342,742				—			$	342,742				—
Loans held for sale			5,857				—				5,857				—
Loans (1)			121,762				—				17,707			$	104,055
Derivative product assets, net			77				—				77				—
Other real estate owned (2)			26,819				—				26,819				—
September 30, 2008
Available for sale securities		$	267,661				—			$	267,661				—
Loans held for sale			2,701				—				2,701				—
Loans (1)			68,620				—				8,052			$	60,568
Derivative product assets, net			28				—				28				—
Other real estate owned (2)			4,551				—				4,551				—

For derivative product assets and loans held for sale, the realized and unrealized gains and losses are included in earnings in noninterest income or net interest income, as appropriate, and were not material for the nine-month periods ended September 30, 2009 and 2008.

In April 2009, the FASB issued ASC 825 which changed the reporting requirements on certain fair value disclosures of financial instruments to include interim reporting periods.

The following shows the carrying value and fair value of the Company’s financial assets and financial liabilities as of September 30, 2009.

		September 30, 2009
		Carrying
(Dollars in thousands)		Value				Fair Value
Financial Assets
Cash and cash equivalents		$	170,155			$	170,155
Securities			362,038				361,612
Loans, net			1,455,716				1,463,885
Loans held for sale			5,857				5,857
Derivative product assets			77				77
Financial Liabilities
Deposit liabilities			1,761,287				1,772,018
Borrowings			133,850				130,305
Subordinated debt			53,610				17,160

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 at September 30, 2009:

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 based on market quotations when available or by using a discounted cash flow approach. 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, 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 mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risks 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. The estimated fair value is not an exit price fair value under ASC 820 when this valuation technique is used.

Loans held for sale: Fair values are based upon estimated values to be received from independent third party purchasers.

Deposit Liabilities: The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for funding of similar remaining maturities.

Borrowings: The fair value of floating rate borrowings is the amount payable on demand at the reporting date. The fair value of fixed rate borrowings is estimated using the rates currently offered for borrowings of similar remaining maturities.

Subordinated debt: The fair value of the floating rate subordinated debt is estimated using a market rate currently observed for similar securities of comparable credit quality.

Derivative product assets and liabilities: Quoted market prices or valuation models that incorporate current market data inputs are used to estimate the fair value of derivative product assets and liabilities.

NOTE F — IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES

At September 30, 2009 and 2008, the Company’s recorded investments in impaired loans and the related valuation allowances were as follows:

		2009								2008
		Recorded				Valuation				Recorded				Valuation
(Dollars in thousands)		Investment				Allowance				Investment				Allowance
Impaired loans without an allowance		$	59,755			$	0			$	38,839			$	0
Impaired loans with an allowance			110,335				16,533				38,252				8,471
Impaired loans		$	170,090			$	16,533			$	77,091			$	8,471

Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been granted and the impairment has been measured using discounted cash flows.

The valuation allowance is included in the allowance for loan losses. Where appropriate the impaired loans were measured for impairment based on the value of underlying collateral. The majority of impaired loans are to residential real estate developers for construction and land development. These relationships, including the impaired balances, have been and continue to be assessed and evaluated to determine the probable loan loss. This evaluation includes obtaining current appraisal values for the properties held as collateral and assessing the value of personal guarantees, and requires significant management judgment. Depending on changes in circumstances involving each exposure, future assessments of probable losses may yield materially different results, which may result in a material increase or decrease in the allowance for loan losses through provisions for loan losses on our income statements.

Interest payments received on impaired loans are recorded as interest income, unless the collection of the remaining recorded investment is doubtful at that time, in which case, payments received are recorded as reductions to principal.

Nonaccrual loans and accruing loans past due 90 days or more at September 30, 2009 and 2008 were $153,981,000 and $48,000, respectively, for 2009 and $75,793,000 and $1,297,000, respectively for 2008.

NOTE G — CONTINGENCIES

The Company and its subsidiaries, because of the nature of their businesses, are at all times subject to numerous legal actions, threatened or filed. Management presently believes that none of the legal proceedings to which it is a party are likely to have a materially adverse effect on the Company’s consolidated financial condition, operating results or cash flows, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation.

The Company has evaluated events from the date of the consolidated financial statements on September 30, 2009 through the issuance of those consolidated financial statements included in this Quarterly Report on Form 10-Q on November 9, 2009. No events were identified requiring recognition and/or disclosure in the consolidated financial statements.

As a result of the public issuance of common stock the Company has notified Treasury to reduce the Warrant it holds to purchase common stock by 50% to 589,625 shares.

NOTE H — REGULATORY CAPITAL

A common stock offering was completed during the third quarter of 2009 and added 33.7 million in new common shares and resulted in $70.5 million in additional Tier 1 common equity, net of issuance costs. In addition, the Company expects to close a firm commitment from a private equity firm in the fourth quarter of 2009 for 6 million shares and $13.5 million gross proceeds.

The Company is well capitalized for bank regulatory purposes. 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 under “Capital Resources” in this Report. At September 30, 2009, the Company’s principal subsidiary, Seacoast National Bank, or “Seacoast National”, met the risk-based capital and leverage ratio requirements for well capitalized banks under the regulatory framework for prompt corrective action.

Seacoast National has agreed to maintain a Tier 1 capital (to adjusted average assets) ratio of at least 7.50% and a total risk-based capital ratio of at least 12.00% as of March 31, 2009 with its primary regulator, the Office of the Comptroller of the Currency (“OCC”). The agreement with the OCC as to minimum capital ratios does not change the Bank’s status as “well-capitalized” for bank regulatory purposes.

NOTE I — LETTERS OF CREDIT

During the second quarter of 2009, the Company’s banking subsidiary utilized $43.0 million in letters of credit issued by the Federal Home Loan Bank (“FHLB”) to satisfy a portion of its pledging requirement to transact business as a qualified public depository within the state of Florida. The letters of credit had a term of one year with an annual fee equivalent to 5 basis points, or $21,500, amortized over the one year term of the letters. During the third quarter, the Company’s banking subsidiary utilized an additional $33.0 million in letters of credit issued by the FHLB with similar terms, and an annual fee of $16,500. No interest cost is associated with the letters of credit.

NOTE J — SECURITIES

The amortized cost and fair value of securities available for sale and held to maturity at September 30, 2009 and December 31, 2008 are summarized as follows:

		September 30, 2009
		Gross				Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities		$	1,196			$	2			$	—			$	1,198
Mortgage-backed securities of Government Sponsored Entities			49,514				1,452				—				50,966
Collateralized mortgage obligations of Government Sponsored Entities			210,826				7,310				(240	)			217,896
Private collateralized mortgage obligations			68,566				772				(2,032	)			67,306
Obligations of state and political subdivisions			2,021				82				(1	)			2,102
Other			3,274				—				—				3,274
		$	335,397			$	9,618			$	(2,273	)		$	342,742
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of Government Sponsored Entities		$	493			$	—			$	—				493
Private collateralized mortgage obligations			14,096				59				(564	)			13,591
Obligations of state and political subdivisions			4,707				81				(2	)			4,786
		$	19,296			$	140			$	(566	)		$	18,870

		December 31, 2008
		Gross				Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
		(In thousands)
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities		$	22,094			$	286			$	—			$	22,380
Mortgage-backed securities of Government Sponsored Entities			59,500				1,035				(6	)			60,529
Collateralized mortgage obligations of Government Sponsored Entities			200,812				4,806				(178	)			205,440
Private collateralized mortgage obligations			27,106				—				(2,652	)			24,454
Obligations of state and political subdivisions			2,021				51				(2	)			2,070
Other			3,157				—				—				3,157
		$	314,690			$	6,178			$	(2,838	)		$	318,030
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of Government Sponsored Entities		$	1,960			$	—			$	(47	)		$	1,913
Private collateralized mortgage obligations			20,288				—				(1,758	)			18,530
Obligations of state and political subdivisions			5,623				49				(6	)			5,666
		$	27,871			$	49			$	(1,811	)		$	26,109

Proceeds from sales of securities available for sale for the nine-month period ended September 30, 2009, were $56,663,000 with gross gains of $3,211,000 and no losses. Proceeds from sales of securities available for sale for the nine-month period ended September 30, 2008, were $13,391,000 with gross gains of $355,000 and no losses.

Securities with a carrying value of $269,875,000 and $273,032,000 and a fair value of $269,881,000 and $272,993,000 at September 30, 2009 and December 31, 2008, respectively, were pledged as collateral for repurchase agreements, United States Treasury deposits, other public deposits and trust deposits.

The amortized cost and fair value of securities at September 30, 2009, 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.

		Held for Investment								Available for Sale
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
		(In thousands)
Due in less than one year		$	—			$	—			$	1,196			$	1,198
Due after one year through five years			1,472				1,484				—				—
Due after five years through ten years			2,524				2,552				791				836
Due after ten years			711				750				1,230				1,266
			4,707				4,786				3,217				3,300
Mortgage-backed securities of Government Sponsored Entities			—				—				49,514				50,966
Collateralized mortgage obligations of Government Sponsored Entities			493				493				210,826				217,896
Private collateralized mortgage obligations			14,096				13,591				68,566				67,306
No contractual maturity			—				—				3,274				3,274
		$	19,296			$	18,870			$	335,397			$	342,742

All of the Company’s securities at September 30, 2009 and December 31, 2008 which had unrealized losses were obligations of the state and political subdivisions, U.S. Government agencies or private label collateralized mortgage related securities. Management expects that all principal will be repaid at a par value at the date of maturity.

		September 30, 2009
		Less than 12 months								12 months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
Collateralized mortgage obligations of Government Sponsored Entities		$	21,439			$	(240	)		$	—			$	—			$	21,439			$	(240	)
Private collateralized mortgage obligations			7,510				(164	)			29,037				(2,432	)			36,547				(2,596	)
Obligations of state and political subdivisions			—				—				1,549				(3	)			1,549				(3	)
Total temporarily impaired securities		$	28,949			$	(404	)		$	30,586			$	(2,435	)		$	59,535			$	(2,839	)

		December 31, 2008
		Less than 12 months								12 months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
Mortgage-backed securities of Government Sponsored Entities		$	7,714			$	(6	)		$	—			$	—			$	7,714			$	(6	)
Collateralized mortgage obligations of Government Sponsored Entities			12,450				(176	)			1,914				(49	)			14,364				(225	)
Private collateralized mortgage obligations			—				—				42,983				(4,410	)			42,983				(4,410	)
Obligations of state and political subdivisions			503				(1	)			1,517				(7	)			2,020				(8	)
Total temporarily impaired securities		$	20,667			$	(183	)		$	46,414			$	(4,466	)		$	67,081			$	(4,649	)

During the second quarter 2009, the Company adopted ASC 320 formerly FSP FAS 115-2 and FAS 124-2 Recognition and Presentation of Other-Than-Temporary Impairments.

The Company owned individual investment securities of $59.5 million with aggregate gross unrealized losses at September 30, 2009. Based on a review of each of the securities in the investment securities portfolio at September 30, 2009, the Company concluded that it expected to recover the amortized cost basis of its investment.

Approximately $2.6 million of the unrealized losses pertain to super senior private label securities secured by collateral originated prior to 2005 with a fair value of $36.5 million and were attributable to a combination of factors, including relative changes in interest rates since the time of purchase and decreased liquidity for investment securities in general. The collateral underlying these mortgage investments are 30- and 15-year fixed and 10/1 adjustable rate mortgages loans with low loan to values, subordination and historically have had minimal foreclosures and losses. Based on its assessment of these factors, management believes that the unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality.

The Company also had $240,000 of unrealized losses on mortgage-backed securities of government sponsored entities having a fair value of $21.4 million that were attributable to a combination of factors, including relative changes in interest rates since the time of purchase and decreased liquidity for investment securities in general. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors, management believes that the unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities.

The unrealized losses on debt securities issued by states and political subdivisions amounted to $3,000 at September 30, 2009. The unrealized losses on state and municipal holdings included in this analysis are attributable to a combination of factors, including a general decrease in liquidity and an increase in risk premiums for credit-sensitive securities since the time of purchase. Based on its assessment of these factors, management believes that unrealized losses on these debt security holdings are a function of changes in investment spreads and liquidity and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities.

As of September 30, 2009, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its investment securities which have losses. Therefore, management does not consider any investment to be other-than-temporarily impaired at September 30, 2009.

Included in other assets are $13.9 million and $12.8 million at September 30, 2009 and December 31, 2008, respectively, of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. At September 30, 2009, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $13.9 million of cost method investment securities.

NOTE K — INCOME TAXES

The tax benefit for the net loss for the third quarter totaled $15.7 million. A deferred tax valuation allowance was recorded in a like amount, and therefore there was no change in the carrying value of net deferred tax assets which are supported by tax planning strategies. Should the economy show signs of improvement and the Company’s credit losses moderate in the future, increased reliance on management’s forecast of future taxable earnings could result in realization of additional future tax benefits.

Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIRD QUARTER 2009

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 Company’s Condensed Consolidated Financial Statements and the related notes included in this report.

NEW OFFICES / CLOSURES / RELOCATIONS

The Company’s banking subsidiary has consolidated, improved and opened a number of branch offices during 2009 and 2008. A new branch office was opened on January 20, 2009 in the same shopping plaza as our existing Wedgewood branch in Martin County. This new branch has better ingress and egress on a corner of U.S. Highway One. Our office on Northlake Boulevard in northern West Palm Beach was closed on June 2, 2009, to reduce overhead and rationalize cost with future growth opportunities. Customers of this office are now served by our PGA Boulevard office.

During 2008, the Company’s banking subsidiary consolidated three branch locations in the first quarter and in the second quarter opened one new branch in Brevard County on Murrell Road.

Branch additions to bank premises and equipment over the past twelve months have been more than offset by depreciation of $3.5 million over the same period, resulting in a decrease in bank premises and equipment (net) of $1,254,000 at September 30, 2009, compared to September 30, 2008.

EARNINGS SUMMARY

Net loss available to common shareholders for the third quarter of 2009 totaled $(41,714,000) or $(1.21) per average common diluted share, as a result of continued increased credit costs. This compares to $(63,937,000) or $(3.35) per average common share in the second quarter of 2009 which included the write-off of $49.8 million of all of the Company’s goodwill (see “Goodwill Impairment” under “Critical Accounting Estimates”) and $(5,697,000) or $(0.30) per average common diluted share in the first quarter of 2009. In the third quarter a year ago, net loss available to common shareholders totaled $(3,448,000) or ($0.18) per average common diluted share.

As forecasted, the net interest margin continued to improve, increasing by 9 basis points during the third quarter of 2009 from the second quarter of 2009, and by 21 basis points during the second quarter of 2009 from the first quarter of 2009, after improving 12 basis points during the first quarter of 2009 from the fourth quarter of 2008. The Company has continued to benefit from lower rates paid for interest bearing liabilities due to the Federal Reserve’s reduction in interest rates and its continuance of historically low interest rates, as well as our improved mix of deposits. The average cost of interest bearing liabilities was 15 basis points lower for the third quarter of 2009, compared to second quarter 2009, 40 basis points lower for the second quarter of 2009, compared to first quarter 2009, and was 47 basis points lower for the first quarter of 2009, compared to fourth quarter 2008, a total reduction of 102 basis points.

The improved mix of deposits reflects the continued success of our retail deposit growth initiatives. Signs of improved stability in home prices and greater transaction volumes increased fee income from residential real estate production during the first, second and third quarters of 2009.

Noninterest expenses increased by $0.5 million versus the prior year’s third quarter result, and were up $52.7 million for the nine-month period ended September 30, 2009, compared to 2008. The increase for the nine-month period was primarily a result of our write-off of $49.8 million of goodwill (see “Goodwill Impairment” under “Critical Accounting Estimates”) and a special Federal Deposit Insurance Corporation (FDIC) assessment of $996,000. We have managed our controllable overhead, with noninterest expenses (excluding the write-off of goodwill and the increase in FDIC assessments) virtually unchanged versus a year ago. While reductions in overhead occurred in salaries and wages, employee benefits, outsourced data processing costs, furniture and equipment expenses and marketing expenses, these reductions were almost entirely offset by higher legal and professional fees and costs to manage and liquidate foreclosed and repossessed property, reflecting economic conditions.

Our provision for loan losses was substantially higher than in the first and second quarter of 2009, with $45.4 million of provision for loan losses for the third quarter of 2009 compared to $26.2 million and $11.7 million for the second and first quarter of 2009, respectively. Provisions for loans losses were higher year over year for the first nine months of 2009 as a result of higher net charge-offs for 2009 and the Company increasing its allowance for loan losses to loans outstanding ratio to 3.25 percent, or 138 basis points since September 30, 2008.

CRITICAL ACCOUNTING ESTIMATES

Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions that may affect the Company’s financial status and that involve the most difficult, subjective and complex assessments are:

•

the allowance and the provision for loan losses;

•

the fair value and other than temporary impairment of securities;

•

realization of deferred tax assets;

•

goodwill impairment; and

•

contingent liabilities.

The following is a brief discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to us that could have a material effect on our reported financial information.

Allowance and Provision for Loan Losses

The information contained on pages 32-35 and 42-50 related to the “Provision for Loan Losses”, “Loan Portfolio”, “Allowance for Loan Losses” and “Nonperforming Assets” is intended to describe the known trends, events and uncertainties which could materially affect the Company’s accounting estimates related to our allowance for loan losses.

Fair Value and Other than Temporary Impairment of Securities Classified as Available for Sale

At September 30, 2009, securities designated as available for sale totaled $342,742,000. The fair value of the available for sale portfolio at September 30, 2009 was more than historical amortized cost, producing net unrealized gains of $7,345,000 that have been included in other comprehensive income (loss) as a component of shareholders’ equity. The Company made no change to the valuation techniques used to determine the fair values of securities during the first, second or third quarters of 2009. The fair value of each security available for sale was obtained from independent pricing sources utilized by many financial institutions. 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. Generally the Company obtains one price for each security. However, actual values can only be determined in an arms-length transaction between a willing buyer and seller that can, and often do, vary from these reported values. Furthermore, significant changes in recorded values due to changes in actual and perceived economic conditions can occur rapidly, producing greater unrealized losses or gains in the available for sale portfolio.

The credit quality of the Company’s securities holdings is investment grade and higher. These securities, except for approximately $2.1 million of states and their political subdivision’s securities, as of September 30, 2009, generally are traded in highly liquid markets. Obligations of U.S. Treasury and U.S. Government agencies total $270 million, or 78.8 percent of the total portfolio. The remainder of the portfolio primarily consists of super senior private label securities secured by collateral originated prior to 2005. The collateral underlying these mortgage investments are 30- and 15-year fixed rate and 10/1 adjustable rate mortgage loans. Historically, these mortgage loans have had minimal foreclosures and losses.

These investments are reviewed quarterly for other than temporary impairment, or “OTTI”, by considering the following primary factors: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. Prices obtained from pricing services are usually not adjusted. However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market inputs, including interest rate and yield curves, volatilities, prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities.

Changes in the fair values, as a result of deteriorating economic conditions and credit spread changes, should only be temporary. Further, management believes that the Company’s other sources of liquidity, as well as the cash flow from principal and interest payments from the securities portfolio, reduces the risk that losses would be realized as a result of a need to sell securities to obtain liquidity.

The Company also holds stock in the Federal Home Loan Bank of Atlanta (“FHLB”) totaling $7.1 million as of September 30, 2009, slightly less than at year-end 2008. The FHLB eliminated its dividend for the first quarter of 2009 but has since reinstated dividends, and instituted quarterly rather than daily repurchases of FHLB activity-based stock in February 2009. The Company accounts for the stock based on the industry guidance in ASC 942 formerly SOP 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We evaluated our holdings in FHLB stock at September 30, 2009 totaling $7.1 million and believe our holdings in the stock are ultimately recoverable at par. We do not have operational or liquidity needs that would require redemption of the FHLB stock in the foreseeable future and, therefore, have determined that the stock is not other-than-temporarily impaired.

Realization of Deferred Tax Assets

Our wholly-owned subsidiary, Seacoast National, had a state deferred tax asset (“DTA”) of $5.5 million at December 31, 2008 reflecting the benefit of $101.3 million in net operating loss (“NOL”) carry-forwards, which will expire between 2027 and 2028. This deferred state tax asset resulted from the large provision for loan losses in 2008 related to Seacoast National’s residential construction and land development loan portfolio. Early recognition of and aggressive responses to unprecedented economic conditions have resulted in substantially higher loan loss provisions and losses for Seacoast National during 2008 and 2009. Our recognition of market conditions allowed for realignment of resources early in 2008 and significant reductions in residential construction and land development loan exposures which at September 30, 2009 continue to decline, totaling 3.8 percent of total loans compared to 7.8 percent at December 31, 2008 and 20.2 percent at their peak during 2007. Management believes that loan loss provisions will likely be much lower in the future over the 20-year carry-forward period for state NOLs. Seacoast National has been through other similar economic cycles in the past where provisioning for loan losses has been elevated followed by periods of lower risk and where little to no loan loss provisions were needed. It is management’s opinion that Seacoast National’s future taxable income will ultimately allow for the recovery of the NOL, and the utilization of its deferred tax assets.

As a result of the losses incurred in 2008, the Company was in a three-year cumulative pretax loss position at December 31, 2008. A cumulative loss position is considered significant negative evidence in assessing the prospective realization of a DTA from a forecast of future taxable income. The use of the Company’s forecast of future taxable income was not considered positive evidence which could be used to offset the negative evidence at this time, given the uncertain economic conditions. Therefore, a valuation allowance of $5.5 million was recorded related to the Company’s state deferred tax asset at December 31, 2008. As a result of the third quarter loss a tax benefit of $15.7 million was recorded, however the Company also increased its DTA valuation allowance by the same amount. 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 additional future tax benefits.

Goodwill Impairment

After completing a second step goodwill impairment analysis during the third quarter of 2009, the preliminary conclusion that the entire value of goodwill was impaired in the second quarter of 2009 was confirmed.

Contingent Liabilities

The Company is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and tax and other claims arising from the conduct of our business activities. These proceedings include actions brought against the Company and/or our subsidiaries with respect to transactions in which the Company and/or our subsidiaries acted as a lender, a financial advisor, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated amounts involved in a contingency. Throughout the life of a contingency, the Company or our advisors may learn of additional information that can affect our assessments about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for those claims.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income (on a fully taxable equivalent basis) for the third quarter of 2009 totaled $19,101,000, increasing from 2009’s second quarter by $114,000 or 0.6 percent, but lower than third quarter 2008’s result by $85,000 or 0.4 percent. The following table details net interest income and margin results (on a tax equivalent basis) for the past five quarters:

		Net Interest				Net Interest
		Income				Margin
(Dollars in thousands)		(tax equivalent)				(tax equivalent)
Third quarter 2008		$	19,186				3.57	%
Fourth quarter 2008			17,535				3.32
First quarter 2009			18,241				3.44
Second quarter 2009			18,987				3.65
Third quarter 2009			19,101				3.74

Fully taxable equivalent net interest income is a common term and measure used in the banking industry but is not a term used under U.S. generally accepted accounting principles (“GAAP”). We believe that these presentations of tax-equivalent net interest income and tax equivalent net interest margin aid in the comparability of net interest income arising from both taxable and tax-exempt sources over the periods presented. We further believe these non-GAAP measures enhance investors’ understanding of the Company’s business and performance, and facilitate an understanding of performance trends and comparisons with the performance of other financial institutions. The limitations associated with these measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently, including as a result of using different assumed tax rates. These disclosures should not be considered an alternative to GAAP. The following information is provided to reconcile GAAP measures and tax equivalent net interest income and net interest margin on a tax equivalent basis.

		Third				Second				First				Fourth				Third
		Quarter				Quarter				Quarter				Quarter				Quarter
		2009				2009				2009				2008				2008
		(Dollars in thousands)
Non-taxable interest income		$	105			$	135			$	139			$	141			$	145
Tax Rate			35	%			35	%			35	%			35	%			35	%
Net interest income (TE)		$	19,101			$	18,987			$	18,241			$	17,535			$	19,186
Total net interest income (not TE)			19,051				18,920				18,174				17,467				19,117
Net interest margin (TE)			3.74	%			3.65	%			3.44	%			3.32	%			3.57	%
Net interest margin (not TE)			3.73				3.64				3.43				3.31				3.56

Net interest margin on a tax equivalent basis improved 9 basis points to 3.74 percent for the third quarter of 2009 compared to the second quarter of 2009, and was higher by 17 basis points year over year. Net interest income and net interest margin have improved quarter over quarter during 2009, despite the challenging lending environment and the reduction of interest due to nonaccrual loans. Nonaccrual loans have been the primary forces adversely affecting our net interest income and net interest margin when comparing these returns for 2009 to the same periods in 2008.

The earning asset mix changed year over year. For the third quarter of 2009, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 77.6 percent, compared to 84.2 percent a year ago. Average securities as a percent of average earning assets increased from 13.3 percent a year ago to 17.6 percent during third quarter 2009 and federal funds sold and other investments increased to 4.8 percent from 2.5 percent over the same period in 2008. In addition to decreasing average total loans as a percentage of earning assets, the mix of loans changed, with commercial and commercial real estate volumes representing 55.6 percent of total loans at September 30, 2009 (compared to 60.1 percent a year ago at September 30, 2008). This reflects our reduced exposure to commercial construction and land development loans on residential properties, which declined by $134.8 million from September 30, 2008 to September 30, 2009. Lower yielding residential loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 39.9 percent of total loans at September 30, 2009 (versus 35.6 percent a year ago) (see “Loan Portfolio”).

The yield on earning assets for the third quarter 2009 was 4.98 percent, 80 basis points lower than for third quarter 2008, a reflection of the lower interest rate environment, as well as higher nonperforming loans. The following table details the yield on earning assets (on a tax equivalent basis) for the past five quarters:

		3rd				2nd				1st				4th				3rd
		Quarter				Quarter				Quarter				Quarter				Quarter
		2009				2009				2009				2008				2008
Yield			4.98	%			5.03	%			5.16	%			5.45	%			5.78	%

The yield on loans declined 75 basis points to 5.26 percent over the last twelve months. Nonaccrual loans totaling $154.0 million or 10.2 percent of total loans at September 30, 2009, versus $75.8 million or 4.3 percent of total loans a year ago, reduced the yield on our loan portfolio. The yield on investment securities was lower as well, decreasing 6 basis points year over year to 4.93 percent, due primarily to purchases of securities at lower yields available in current markets, which diluted the overall portfolio yield year over year. The decline in yield on investment securities was less severe than the decline of 22 basis points reported year over year for second quarter 2009 and the 64 basis points decrease reported year over year for first quarter 2009, reflecting recent securities purchases at higher yields that improved the overall yield for the third quarter by 7 basis points from second quarter 2009, and second quarter 2009’s yield by 35 basis points from first quarter 2009. Federal funds sold and other investments yielded 0.67 percent for the third quarter 2009, lower when compared to 2.41 percent a year ago for the same period. The dramatic reduction in interest rates during 2008, with the Federal Reserve lowering the target federal funds rate to 0 to 25 basis points and the Treasury yield curve shifting lower, is expected to continue to limit opportunities to invest at higher interest rates prospectively.

Average earning assets for the third quarter of 2009 decreased $63.6 million or 3.0 percent compared to the second quarter of 2009. Average loan balances decreased $60.5 million or 3.7 percent to $1,571.2 million and average investment securities were $8.1 million or 2.2 percent lower, totaling $355.5 million, average federal funds sold and other investments increased $5.1 million or 5.5 percent to $97.2 million. The decline in average earning assets is consistent with reduced funding as a result of seasonal declines during the summer in public fund sweep repurchase agreements.

Commercial and commercial real estate loan production for the first nine months of 2009 totaled $15 million. In comparison, commercial and commercial real estate loan production for 2008 totaled $117 million, with $8 million in the fourth quarter, $33 million in the third quarter, $19 million in the second quarter and $57 million for the first quarter. Although we continue to make loans generally, economic conditions in the markets the Company serves are expected to result in negative loan growth in 2009. At September 30, 2009 the Company’s total commercial and commercial real estate loan pipeline was $46 million, versus $108 million at September 30, 2008.

Closed residential mortgage loan production for the third quarter of 2009 totaled $28 million, all of it was sold servicing-released. In comparison, $43 million in residential loans were produced in the second quarter of 2009, of which $24 million was sold servicing-released, $38 million in residential loans were produced in the first quarter of 2009, with $20 million sold servicing-released, and $22 million was produced in the third quarter of 2008, with $8 million sold servicing released. Applications for residential mortgages totaled $43 million during the third quarter of 2009 compared to $71 million and $92 million, respectively, for the second and first quarters of 2009. Third quarter is historically a seasonally weak quarter for home purchases. Existing home sales and home mortgage loan refinancing activity in the Company’s markets have increased in 2009. Demand for new home construction is expected to remain soft in 2009 and into 2010.

During the third and second quarter of 2009, the sale of mortgage backed securities totaling $25.3 million and $29.5 million, respectively, resulted in securities gains of $1,425,000 and $1,786,000, respectively, for each quarter. Management believed these securities had minimal opportunity to further increase in value. During the third quarter of 2009 maturities (principally pay-downs) totaled $25.4 million and securities portfolio purchases totaled $47.3 million. In comparison, during the second quarter of 2009 maturities (principally pay-downs and one large maturity of $20 million) totaled $47.4 million and securities portfolio purchases totaled $64.2 million.

The cost of average interest-bearing liabilities in the third quarter of 2009 decreased 15 basis points to 1.50 percent from second quarter 2009 and was 114 basis points lower than for the third quarter of 2008, reflecting the lower interest rate environment. The following table details the cost of average interest bearing liabilities for the past five quarters:

		3rd				2nd				1st				4th				3rd
		Quarter				Quarter				Quarter				Quarter				Quarter
		2009				2009				2009				2008				2008
Rate			1.50	%			1.65	%			2.05	%			2.52	%			2.64	%

The Company’s retail core deposit focus has produced strong growth in core deposit customer relationships when compared to the prior year’s results, and resulted in increased balances which offset planned certificate of deposit runoff during the first, second and third quarter of 2009. We have gained customers. A total of 1,622 new households were added in the third quarter of 2009, up 10.2 percent compared to the second quarter of 2009, and comparing to 1,566 new households in the third quarter of 2008. The improved deposit mix and lower rates paid on interest bearing deposits during the third quarter of 2009 reduced the overall cost of interest bearing deposits to 1.47 percent, 20 basis points lower than in the second quarter of 2009 and 113 basis points lower than in the third quarter a year ago. Still a significant component favorably affecting the Company’s net interest margin, the average balances of lower cost interest bearing deposits (NOW, savings and money market) totaled 52.7 percent in the third quarter of 2009, although this was lower than the average of 56.3 percent a year ago, as a result of customers shifting balances from these lower rate products to certificates in this low interest rate environment. The average rate for lower cost interest bearing deposits for the third quarter of 2009 was 0.58 percent, down by 13 basis points from the second quarter of 2009 and down 122 basis points from the third quarter of 2008. Certificate of deposit (“CD”) rates paid were also lower compared to the second quarter of 2009 and third quarter of 2008, lower by 35 basis points and 119 basis points, respectively, and averaged 2.45 percent for the third quarter of 2009. Average CDs (the highest cost component of interest bearing deposits) were 47.3 percent of interest bearing deposits for third quarter 2009, a higher percentage than a year ago when the percentage was 43.7 percent.

Average deposits totaled $1,737.9 million during the third quarter of 2009, and were $35.2 million lower compared to second quarter 2009, due primarily to lower average customer balances as a result of normal seasonal declines and a planned reduction of brokered deposits of $9 million. Total average sweep repurchase agreements for the third quarter were $50.5 million lower as a result of normal seasonal funding trends for public fund customers. Total average deposits plus sweep repurchase agreements totaled $1,824.2 million during the third quarter of 2009, down $85.7 million or 4.5 percent from second quarter 2009. Average total deposits declined $139.9 million or 7.5 percent compared to the same period in 2008, principally as a result of deposit declines in the Company’s central Florida region (resulting from slower economic growth). The average aggregate amounts of NOW, savings and money market balances decreased $121.1 million or 13.6 percent to $771.3 million for third quarter 2009 compared to third quarter 2008, noninterest bearing deposits decreased $20.0 million or 6.8 percent to $274.0 million, and average CDs increased by $1.1 million or 0.2 percent to $692.6 million. As a result of the low interest rate environment, customers have deposited more funds into CDs, while maintaining lower average balances in savings and other liquid deposit products that pay no interest or a lower interest rate. In addition, Seacoast National joined the Certificate of Deposit Registry program (“CDARs”) on July 1, 2008, which allows customers to have CDs safely insured beyond the FDIC deposit insurance limits. This benefited our deposit retention efforts during the recent financial market disruption and provided a new product offering to homeowners’ associations concerned with FDIC insurance coverage.

FDIC deposit insurance has been temporarily increased from $100,000 to $250,000 per depositor from October 14, 2008 through December 31, 2013. Under the FDIC’s Temporary Liquidity Guarantee, or “TLG”, program, the entire amount in any eligible noninterest bearing transaction deposit account is guaranteed by the FDIC to the extent such balances are not covered by FDIC insurance. Seacoast National is participating in the TLG program to offer the best possible FDIC coverage to its customers. The TLG noninterest bearing transaction account guarantee is backed by the full faith and credit of the United States, and unless extended, will expire December 31, 2009.

Average short-term borrowings have been principally comprised of sweep repurchase agreements with customers of the Company’s bank subsidiary, which decreased $50.5 million or 36.9 percent from the second quarter of 2009 but increased $3.5 million or 4.3 percent from the third quarter of 2008. Most of the increase in average sweep repurchase agreement balances was due to efforts to reduce FDIC insurance costs by migrating public fund deposits beginning late in the fourth quarter of 2008; these public funds reach their normal seasonal lows during the third quarter each year. Other borrowings are comprised of subordinated debt of $53.6 million related to trust preferred securities issued by trusts organized by the Company, and advances from the FHLB of $65.1 million that have not changed since year-end 2007.

Company management believes its market expansion, branding efforts and retail deposit growth strategies have produced new relationships and core deposits, which has assisted in maintaining a stable net interest margin. Reductions in nonperforming assets also are expected to aid in increasing the Company’s future net interest margin.

PROVISION FOR LOAN LOSSES

Management determines the provision for loan losses charged to operations by continually analyzing and monitoring delinquencies, nonperforming loans and the level of outstanding balances for each loan category, as well as the amount of net charge-offs, and by estimating losses inherent in its portfolio. While the Company’s policies and procedures used to estimate the provision for loan losses charged to operations are considered adequate by management, factors beyond the control of the Company, such as general economic conditions, both locally and nationally, make management’s judgment as to the adequacy of the provision and allowance for loan losses necessarily approximate and imprecise (see “Nonperforming Assets” and “Allowance for Loan Losses”).

The provision for loan losses is the result of a detailed analysis estimating an appropriate and adequate allowance for loan losses. The analysis includes the evaluation of impaired loans as prescribed under ASC 310 formerly SFAS No. 114 Accounting by Creditors for Impairment of a Loan, and SFAS No. 118 Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures, as well as, an analysis of homogeneous loan pools not individually evaluated as prescribed under ASC 450 formerly SFAS No. 5, Accounting for Contingencies. For the third quarter ended September 30, 2009, the provision for loan losses was $45.4 million, higher than 2008’s third quarter provision for loan losses of $10.2 million, and higher than the $11.7 million and $26.2 million in provisioning for the first and second quarter of 2009, respectively.

The provision for loan losses was $5.2 million more than net charge-offs of $40.1 million. Net charge-offs were 10.14 percent of average total loans in the third quarter of 2009. In the first and second quarter of 2009, provisions for loan losses were $11.1 million and $3.1 million more than net charge-offs of $15.1 million (or 3.71 percent of average total loans) and $8.5 million (or 2.07 percent of average total loans), respectively. In comparison, net charge-offs were $4.4 million, $33.5 million and $9.3 million in the first, second and third quarters of 2008, respectively, and $81.1 million for the entire year. Net charge-offs during 2008 and 2009 were primarily due to higher net charge-offs of commercial construction and land development loans financing residential development, which reflected housing market declines. A downturn in residential real estate prices and sales has negatively affected the entire industry since mid-2006 and the Company began a comprehensive effort to reduce its exposure in early 2007. With timely and more aggressive collection efforts, loan sales, and charge-offs, residential construction and land development loans declined $135 million from September 30, 2008 and now represent 3.8 percent of total loans at September 30, 2009. The reduction in the Company’s exposure should reduce earnings volatility from this portfolio in the future.

The following table details the Company’s reduced exposure to large residential construction and land development loans over the past five quarters, as evidenced by loans in this portfolio with balances of $4 million or more declining by almost 82 percent from $98.3 million at September 30, 2008 to $17.8 million, or approximately 7 percent of risk-based capital, at September 30, 2009. All of the remaining $17.8 million in loans greater than $4 million are classified as nonperforming, and of the $39.8 million in loans less than $4 million, $16.4 million or 41.2 percent are nonperforming:

QUARTERLY TRENDS — LOANS AT END OF PERIOD
(Dollars in Millions)

																										2009
						2008								2009												Nonperforming
						3rd Qtr				4th Qtr				1st Qtr				2nd Qtr				3rd Qtr				3rd Qtr				No.
Residential Construction and Land Development
Condominiums		>$4 mil				$	19.6			$	8.6			$	8.4			$	7.9			$	5.3			$	5.3				1
		<$4 mil					13.0				8.8				7.9				8.8				3.7				0.9				1
Town homes		>$4 mil					17.1				—				—				—				—				—				—
		<$4 mil					4.6				6.1				4.2				2.3				—				—				—
Single Family Residences		>$4 mil					13.5				11.9				6.6				6.5				—				—				—
		<$4 mil					23.7				14.9				13.9				10.3				7.1				1.8				10
Single Family Land & Lots		>$4 mil					40.3				22.1				21.8				21.8				5.9				5.9				1
		<$4 mil					29.9				30.7				29.6				21.5				19.5				9.5				21
Multifamily		>$4 mil					7.8				7.8				7.8				7.8				6.6				6.6				1
		<$4 mil					22.9				19.0				17.0				9.8				9.5				4.2				6
TOTAL		>$4 mil					98.3				50.4				44.6				44.0				17.8				17.8				3
TOTAL		<$4 mil					94.1				79.5				72.6				52.7				39.8				16.4				38
GRAND TOTAL						$	192.4			$	129.9			$	117.2			$	96.7			$	57.6			$	34.2				41

The Company’s other loan portfolios related to residential real estate are amortizing loans. The Company has never offered sub-prime, Alt A, Option ARM or any negative amortizing residential loans, programs or products, although we have originated and hold residential mortgage loans from borrowers with original or current FICO credit scores that are less than “prime” FICO credit scores. Substantially all residential originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. The Company selectively adds residential mortgage loans to its portfolio, primarily loans with adjustable rates.

After completing a review of internally criticized commercial real estate exposures late in the third quarter, a number of performing loans were identified that 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 contributed to the increase in nonperforming loans. It is anticipated that many of these loans will be restructured in the next few months as troubled debt restructures or sold.

During the third quarter of 2009, the commercial real estate portfolio (not related to residential construction and land development) nonaccrual loans increased from $2.1 million at June 30, 2009 to $21.8 million at September 30, 2009, and nonaccrual loans for commercial real estate mortgages increased from $19.7 million at June 30, 2009 to $53.3 million at September 30, 2009. Of the $21.7 million in commercial construction and land development loans and $53.3 million in commercial real estate mortgages on nonaccrual, $12.9 million and $28.8 million, respectively, were performing at September 30, 2009.

Since year-end 2008, nonaccrual loans increased by $67.0 million to $154.0 million at September 30, 2009, and were $78.2 million higher than at September 30, 2008 (see “Nonperforming Assets”). Loans declined $221.7 million or 11.7 percent during 2008 and have declined an additional $172.2 million or 10.3 percent since year-end 2008 (see “Loan Portfolio”). For the remainder of 2009, the Company’s loan portfolio is expected to experience further declines.

The Congress and bank regulators are encouraging recipients of TARP capital to use such capital to make loans and the Company has successfully increased its residential mortgage production. Congressional demands for additional lending by TARP capital recipients and regulatory demands for demonstrating and reporting such lending are increasing. On November 12, 2008, the bank regulatory agencies issued a statement encouraging banks to, among other things, “lend prudently and responsibly to creditworthy borrowers” and to “work with borrowers to preserve homeownership and avoid preventable foreclosures.” A total of 236 applications were accepted in the third quarter of 2009 for total residential mortgage loans of $43 million, and 966 applications were taken in the first nine months for $208 million. Closed residential mortgage loans totaled $28 million for the quarter, compared to $38 million and $43 million for the first and second quarters of 2009, respectively. In addition, a total of 73 applications were received seeking restructured mortgages, compared to 93 and 102 in the first and second quarters of 2009, respectively. The Company continues to lend, and we have expanded our mortgage loan originations. However, as consumers and businesses seek to reduce their borrowings, and the economy remains weak, opportunities to lend prudently to creditworthy borrowers are expected to be limited.

NONINTEREST INCOME

Noninterest income, excluding gains or losses from securities, totaled $4,627,000 for the third quarter of 2009, $178,000 or 3.7 percent lower than the second quarter of 2009 and $533,000 or 10.3 percent lower than the third quarter of 2008. Noninterest income accounted for 19.5 percent of total revenue (net interest income plus noninterest income, excluding securities gains or losses) in the third quarter of 2009 compared to 21.3 percent a year ago. Noninterest income for the third quarter of 2009, the second quarter of 2009, and third quarter of 2008 is detailed as follows:

		3rd Qtr				2nd Qtr				3rd Qtr
		2009				2009				2008
Service charges on deposits		$	1,732			$	1,562			$	1,894
Trust income			517				480				597
Mortgage banking fees			337				488				216
Brokerage commissions and fees			326				388				452
Marine finance fees			249				331				371
Debit card income			674				673				620
Other deposit-based EFT fees			73				85				82
Merchant income			371				448				510
Other income			348				350				418
Total		$	4,627			$	4,805			$	5,160

For 2009, third quarter revenues from the Company’s wealth management services businesses (trust and brokerage) decreased year over year, by $206,000 or 19.6 percent, and were $25,000 or 2.9 percent below second quarter 2009’s result. Of the $206,000 decrease, trust revenue was lower by $80,000 or 13.4 percent and brokerage commissions and fees were lower by $126,000 or 27.9 percent. Included in the $126,000 decline in brokerage commissions and fees was a decline of $102,000 in revenue from insurance annuity sales year over year reflecting the lower interest rate environment, and a $15,000 reduction in brokerage commissions. Lower inter vivos trust and agency fees were the primary cause for the decline in trust income, as these decreased $11,000 and $62,000, respectively, from 2008, as well as lower testamentary fee income, which decreased $6,000. Economic uncertainty and declines in asset values were the primary issue affecting clients of the Company’s wealth management services during 2008 and has continued to affect these services in 2009. For the nine months ended September 30, 2009, income from the Company’s wealth management services was $770,000 or 22.5 percent lower compared to 2008.

Service charges on deposits for third quarter 2009 are $162,000 or 8.6 percent lower year over year versus third quarter 2008, but were $170,000 or 10.9 percent above second quarter 2009’s service charges. Overdraft income was the primary cause, as this declined $148,000 compared to the third quarter of 2008 and increased $172,000 compared to the second quarter of 2009. Overdraft fees represented approximately 78 percent of total service charges on deposits for the third quarter 2009, comparable to 78 percent for all of 2008. Growth rates for remaining service charge fees on deposits have been nominal or declining, as the trend over the past few years is for customers to prefer deposit products which have no fees or where fees can be avoided by maintaining higher deposit balances. Year-to-date service charges on deposits for 2009 decreased $677,000 year over year to $4,879,000.

For the third quarter of 2009, fees from the non-recourse sale of marine loans originated by our Seacoast Marine Division of Seacoast National decreased $122,000, or 32.9 percent, compared to the third quarter of 2008, and were lower by $82,000 compared to second quarter 2009. Year to date marine finance fees are $1,061,000 or 53.4 percent lower when compared to results for the first nine months of 2008. The Seacoast Marine Division originated $20 million in loans during the first and second quarters of 2009, and $15 million during the third quarter of 2009 (a total of $55 million year-to-date), compared to $44 million, $55 million and $24 million in each of the first, second and third quarters of 2008, respectively, and $123 million for the first nine months of 2008. As economic conditions deteriorated significantly during 2008, attendance at boat shows by consumers, manufacturers, and marine retailers was lower than in prior years, and as a result marine sales and loan volumes were lower and are predicted to continue to be lower in 2009. The boating industry is contracting, with a number of manufacturers consolidating or predicted to consolidate. The Seacoast Marine Division is headquartered in Ft. Lauderdale, Florida with lending professionals in Florida and California. The California office serves California, Washington and Oregon.

Greater usage of check or debit cards over the past several years by core deposit customers and an increased cardholder base has increased our interchange income. For third quarter 2009, debit card income increased $54,000 or 8.7 percent from third quarter a year ago, and was nominally higher than second quarter 2009’s income. Other deposit-based electronic funds transfer (“EFT”) income decreased $9,000 or 11.0 percent in 2009, compared to third quarter 2008, and decreased $12,000 or 14.1 percent from second quarter 2009’s revenue. Debit card and other deposit-based EFT revenue is dependent upon business volumes transacted, as well as the fees permitted by VISA^® and MasterCard^®. During 2009, our other deposit-based EFT income was adversely affected by lower fees from non-customers utilizing Seacoast National’s automatic teller machines (“ATMs”) which likely reflected the economic recession and tourist and vacation activity.

Merchant income was $139,000 or 27.3 percent lower for the third quarter of 2009, compared to one year earlier, and $77,000 or 17.2 percent lower than for the second quarter of 2009. Merchant income as a source of revenue is dependent upon the volume of credit card transactions that occur with merchants who have business demand deposits with Seacoast National. Over the past few years, expansion into new markets favorably impacted our merchant income, but continued economic weakness and related effects on consumer spending have more than offset our geographic expansion. Merchant income historically has been highest in the first quarter each year, reflecting seasonal sales activity. For the first nine months of 2009, merchant income was $557,000 or 29.1 percent lower than a year ago.

The Company originates residential mortgage loans in its markets, with loans processed by commissioned employees of Seacoast National. Many of these mortgage loans are referred by the Company’s branch personnel. Mortgage banking fees in the third quarter of 2009 increased $121,000 or 56.0 percent from the third quarter of 2008, and were $151,000 less than in the second quarter of 2009. Mortgage banking fees year-to-date were $390,000 or 41.8 percent higher than for the first nine months of 2008. Mortgage banking revenue as a component of overall noninterest income was diminished during 2008. We are beginning to see some signs of stability for residential real estate sales and activity in our markets, with transactions increasing, prices firming and affordability improving. The Company may have opportunities in markets it serves in 2009 and 2010 as tighter credit and reduced capital have limited the ability of some of our competitors. The Company also began offering FHA loans during the second quarter of 2009, a product previously not offered.

Other income for the third quarter of 2009 decreased $70,000 or 16.7 percent compared to third quarter a year ago, and was nominally lower than second quarter 2009’s result. Most line items in other income were slightly lower year over year, including research fees, wire transfer fees, letter of credit fees, foreign exchange fees, late fees, and miscellaneous other fees. For the first nine months of 2009, other income declined $374,000 or 25.8 percent when compared to 2008. The comparison of other income between the first nine months of 2009 and the same period of 2008, was affected by $305,000 of additional income realized upon the redemption of Visa^®, Inc. shares in the first quarter of 2008 as part of Visa’s initial public offering.

NONINTEREST EXPENSES

When compared to the third quarter of 2008, total noninterest expenses increased by $520,000 or 2.6 percent to $20,506,000, and were $719,000 or 3.4 percent lower than second quarter 2009’s expenses, excluding the write-off for goodwill impairment totaling $49,813,000. For the nine months ended September 30, 2009 excluding the impairment write-down of goodwill of $49,813,000, noninterest expenses were $2,909,000 or 5.0 percent higher versus a year ago, totaling $61,066,000. Noninterest expenses year-to-date for 2009 include a special assessment imposed by the Federal Deposit Insurance Corporation (“FDIC”) in the second quarter totaling $996,000, and deposit insurance premiums that were $1,920,000 higher due to the FDIC’s deposit insurance premium rates more than doubling. Noninterest expenses in 2009 have been in line with our expectations and have included $5.0 million of annual expense reductions implemented and effective as of January 1, 2009. Salaries, wages and benefits (excluding one-time severance payments) declined $1,561,000 or 16.6 percent from a year ago for the third quarter, and were $3,818,000 or 13.4 percent lower for the first nine months compared to the same period in 2008, a result of consolidating branches and centralization of management by combining markets. Cost reductions were also achieved in data processing, furniture and equipment expenses, and marketing, all of which declined compared to the prior year.

Salaries and wages for the third quarter of 2009 decreased by $1,115,000 or 14.5 percent to $6,598,000 compared to the prior year same period, and for the nine month period ended September 30, 2009, were $2,829,000 or 12.3 percent lower. Reduced headcount (including the branch consolidations in 2008) and limited accruals for incentive payments due to lower revenues generated from wealth management and weak lending production were the primary causes of these decreases in 2009 compared to 2008. As noted in prior management discussions, the Company has eliminated incentive payouts for senior officers and limited 401K contributions by the Company, cost savings that will remain in effect until the Company produces meaningful earnings improvements. Severance payments during the third quarter of 2009 totaled $142,000, which were $38,000 more than the same period of 2008. Base salaries were $739,000 lower year over year, and 10.7 percent lower than in the third quarter of 2008. Full-time equivalent employees (“FTEs”) totaled 413 at September 30, 2009, 13.6 percent less than the 478 FTEs at September 30, 2008.

Employee benefit costs decreased $408,000 or 23.1 percent to $1,362,000 from the third quarter of 2008, and were $628,000 or 11.4 percent lower for the nine months ended September 30, 2009. The Company recognized higher claims experience in the first six months of 2009 for its self-funded health care plan compared to 2008, with the expectation that these costs would be lower in future periods due to lower FTE’s resulting in fewer participants in the plan for 2009 and larger discounts on services under a more comprehensive network of doctors, hospitals, etc. During the third quarter of 2009, the Company in fact had improved experience, with group health care costs declining $148,000 or 15.1 percent compared to third quarter 2008 and $316,000 or 27.6 percent from second quarter 2009’s costs. In addition to these benefit cost decreases, we achieved a $55,000 reduction in payroll taxes year over year compared to third quarter 2008 and profit sharing accruals for the Company’s 401K plan were reduced by $205,000.

Outsourced data processing costs totaled $1,705,000 for the third quarter of 2009, a decrease of $98,000 or 5.4 percent from a year ago. For the latest nine months, outsourced data processing costs were 6.9 percent lower year over year. Seacoast National utilizes third parties for its core data processing systems and merchant services processing. Outsourced data processing costs are directly related to the number of transactions processed. Merchant income and merchant services processing costs were lower year over year, with fewer transactions occurring at local businesses reflecting the poorer economy (see “Noninterest Income”). Merchant services processing expenses were $116,000 lower than a year ago for the third quarter, and were $171,000 lower the first and second quarters of 2009, an aggregate decline of $458,000. Outsourced data processing costs can be expected to increase as the Company’s business volumes grow and new products such as bill pay, internet banking, etc. become more popular.

Total occupancy, furniture and equipment expenses decreased $65,000 or 2.3 percent to $2,747,000 versus third quarter results last year, and were $116,000 or 1.4 percent lower for the nine months ended September 30, 2009 than in the same period of 2008. This comparison is affected by the sale of certain assets (including leasehold improvements) at closed WalMart locations, which netted the Company approximately $90,000 more than the carrying value of the assets sold in 2008. For the third quarter of 2009, lease payments for bank premises decreased $53,000 year over year and depreciation was $26,000 lower, partially offset by repair and maintenance costs increasing $18,000.

Marketing expenses, including sales promotion costs, ad agency production and printing costs, newspaper and radio advertising, and other public relations costs associated with the Company’s efforts to market products and services, increased by $94,000 or 17.2 percent to $639,000 when compared to a year ago for the third quarter, but were $466,000 or 23.1 percent lower for the nine months ended September 30, 2009, versus a year ago. Agency production, printing and media costs (including newspaper, radio and television) were $115,000 higher for the third quarter 2009, compared to 2008 for the same period. Sales promotion and public relations costs were higher as well, by $10,000 and $25,000, respectively, reflecting branding efforts in the community. Partially offsetting, market research, business meals and donations, were lower by $16,000, $18,000 and $22,000, respectively, than the third quarter of 2008. For the nine months ended September 30, 2008, marketing cost reductions in agency related costs, donations, market research, public relations and business meals were $242,000, $66,000, $41,000, $68,000 and $81,000, respectively, were realized year over year.

Legal and professional fees totaled $1,653,000 for the third quarter of 2009, a decrease of $34,000 or 2.0 percent from the third quarter of 2008. Legal fees were $147,000 higher year over year, primarily due to problem asset resolution. Regulatory examination fees and CPA fees on an aggregate basis were $135,000 lower for 2009, as were professional fees by $46,000, compared to the third quarter of 2008. Legal and professional fees were $1,103,000 or 31.1 percent higher in the first nine months of 2009 compared to the same period last year, primarily because of an increase in legal fees of $1,172,000 due to problem asset resolution.

In addition, professional fees have been higher during this period of increased regulatory compliance. The Company used the consulting services of a former bank regulator who is on the Seacoast National’s Board of Directors (non-independent director) to assist the Bank with its compliance with the formal agreement and its recent regulatory examination. For the three months and nine months ended September 30, 2009 the Bank paid $140,000 and $385,000 respectively, for these services.

The FDIC one-time credit for insurance premiums issued in 2007 was applied to reduce insurance assessments during the first quarter of 2008. As a result, FDIC assessments for the first quarter of 2008 totaled only $59,000 and for the second quarter and third quarter of 2008 totaled $392,000 and $543,000, respectively, whereas FDIC assessments for the first, second and third quarters of 2009 totaled $877,000, $2,026,000 and $1,007,000, respectively. The second quarter 2009 assessment included a special assessment of $996,000, based upon 5 basis points of total assets less Tier 1 risk-based capital. In addition, on April 1, 2009 a higher base assessment went into effect (increasing from 17 basis points to 20 basis points) as well as the FDIC’s implementation of a more complex risk-based formula to calculate assessments. FDIC assessments were mitigated to some degree by Seacoast National working with public fund depositors to move deposits into sweep repurchase agreements, lessening the amount of deposits subject to the higher FDIC assessment rates recently approved for 2009. The FDIC recently approved a prepayment of assessments for the next three years plus fourth quarter 2009’s assessment in December 2009. The Company anticipates that FDIC insurance costs are likely to rise, with more special assessments possible over time due to declines in the FDIC’s Deposit Insurance Fund.

Net losses on other real estate owned and other asset dispositions totaled $2,065,000 for the third quarter of 2009, versus $255,000 a year ago for the third quarter. For the nine month period ended September 30, 2009, net losses were $4,007,000, compared to $841,000 for the nine-month period ended September 30, 2008. Other real estate owned grew during the quarter and while the pace of growth in nonaccrual loans is expected to moderate, costs associated with the management of other real estate owned and other repossessed assets will likely be heightened as problem assets migrate toward liquidation.

Remaining noninterest expenses decreased $128,000 or 4.5 percent to $2,730,000 when comparing the third quarter of 2009 to the same quarter a year ago, and decreased $71,000 or 0.9 percent to $8,136,000 when comparing the first nine months of 2009 to the same period in 2008. Benefiting 2008’s first quarter was a $130,000 reversal of an accrual for the Company’s portion of Visa^® litigation and settlement costs, as a result of Visa’s successful IPO. Increasing year over year for the first nine months of 2009 were telephone and data lines (up $17,000), correspondent bank clearing charges (up $152,000, because lower analysis credits provided for compensating balances in the current lower interest rate environment make the payment of charges more sensible), directors’ fees (up $143,000, reflecting more frequent meetings than a year ago), employee placement fees (up $69,000, principally headhunter fees), and higher losses associated with robbery and customer fraud (up $324,000). More than offsetting were decreases in expenditures for stationery, printing and supplies (down $120,000), postage and courier costs (down $52,000, primarily overnight services), insurance costs (down $131,000, including property and casualty as well as other liability coverage), education (down $25,000, with fewer education programs offered internally), travel related costs (down $152,000, including mileage reimbursement, airline and hotel costs), bank paid closing costs (down $80,000, as home equity line costs paid by Seacoast National have been limited), and origination fees for marine loan production (down $171,000).

INCOME TAXES

Income tax benefits year to date 2009 were 10.0 percent of loss before taxes, compared to 32.6 percent for all of 2008. The lower benefit for 2009 resulted primarily from no tax benefit on the goodwill impairment of $49.8 million and a valuation allowance that offset the tax benefit for the third quarter of 2009.

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. 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 additional future tax benefits.

FINANCIAL CONDITION

CAPITAL RESOURCES

The Company’s ratio of shareholders’ equity to period end total assets was 8.43 percent at September 30, 2009, compared with 9.33 percent at December 31, 2008, and 8.29 percent one year earlier at September 30, 2008. Seacoast’s management uses certain “non-GAAP” financial measures in its analysis of the Corporation’s performance. Seacoast’s management uses this measure to assess the quality of capital and believes that investors may find it useful in their analysis of the Corporation. This capital measure is not necessarily comparable to similar capital measures that may be presented by other companies.

The Company and its banking subsidiary, Seacoast National, are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The Company is a legal entity separate and distinct from Seacoast National and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from its bank subsidiary. Seacoast National has not paid a dividend to the Company since June 30, 2008. Prior OCC approval presently is required for any payments of dividends from Seacoast National to the Company.

Under the National Bank Act, national banks 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 Seacoast National also limits dividends that may be paid to us. Beginning in the third quarter of 2008, we reduced our dividend per share of our common stock to $0.01 and, as of May 19, 2009, we have suspended the payment of dividends, as described below. As of December 31, 2008, Seacoast National cannot pay us any dividends without prior OCC approval, and in all events must maintain appropriate capital that meets regulatory requirements applicable to us.

The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determined that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by Seacoast National or us, respectively. Under a recently adopted Federal Reserve policy, the board of directors of a bank holding company must consider different factors to ensure that its dividend level is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with the its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

As a result of our participation in the TARP CPP program, additional restrictions have been imposed on our ability to declare or increase dividends on shares of our common stock, including a restriction on paying quarterly dividends above $0.01 per share. Specifically, we are unable to declare dividend payments on our common, junior preferred or pari passu preferred shares if we are in arrears on the dividends on the Series A Preferred Stock. Further, without the Treasury’s approval, we are not permitted to increase dividends on our common stock above $0.01 per share until December 19, 2011 unless all of the Series A Preferred Stock has been redeemed or transferred by the Treasury. In addition, we cannot repurchase shares of common stock or use proceeds from the Series A Preferred Stock to repurchase trust preferred securities. The consent of the Treasury generally is required for us to make any stock repurchase until December 19, 2011 unless all of the Series A Preferred Stock has been redeemed or transferred by the Treasury to a third party. Further, our common, junior preferred or pari passu preferred shares may not be repurchased if we have not declared and paid all Series A Preferred Stock dividends.

On May 19, 2009, our board of directors decided to suspend regular quarterly cash dividends on our outstanding common stock and Series A Preferred Stock pursuant to a request from the Federal Reserve as a result of recently adopted Federal Reserve policies related to dividends and other distributions. Dividends will be suspended until such time as dividends are allowed by the Federal Reserve.

In December 2008, the Company sold $50.0 million in Series A Perpetual Preferred Stock and warrants to purchase Company common stock to the Treasury under the TARP Capital Purchase Program, which further strengthened the Company’s already “well-capitalized” status. In addition, during the third quarter of 2009, the Company successfully enhanced capital by selling $89 million in Company common stock, with approximately $76 million supplementing capital during the quarter. An additional $13 million from this sale of Company common stock is expected to settle in the fourth quarter of 2009. As a result, the Company’s capital position remains strong with a total risk-based capital ratio of 16.21 percent at September 30, 2009, higher than December 31, 2008’s ratio of 14.00 percent and higher than 11.69 percent at September 30, 2008.

As a result of the public issuance of common stock the Company has notified Treasury to reduce the Warrant it holds to purchase common stock by 50% to 589,625 shares.

At September 30, 2009, the capital ratios for the Company and its subsidiary, Seacoast National, were as follows:

		Seacoast				Seacoast				Minimum to be
		(Consolidated)				National				Well Capitalized*
September 30, 2009:
Tier 1 capital ratio			14.94	%			11.89	%			6	%
Total risk-based capital ratio			16.21	%			13.17	%			10	%
Tier 1 leverage ratio			10.38	%			8.26	%			5	%

The Bank has agreed to maintain a Tier 1 capital (to adjusted average assets) ratio of at least 7.50% and a total risk-based capital ratio of at least 12.00% as of March 31, 2009 with its primary regulator the Office of the Comptroller of the Current (the “OCC”). The agreement with the OCC as to minimum capital ratios does not change the Bank’s status as “well-capitalized” for bank regulatory purposes.

LOAN PORTFOLIO

Total loans (net of unearned income) were $1,504,566,000 at September 30, 2009, $238,060,000 or 13.7 percent less than at September 30, 2008, and $172,162,000 or 10.3 percent less than at December 31, 2008. The following table details loan portfolio composition at September 30, 2009, December 31, 2008 and September 30, 2008:

		Sept. 30,				Dec. 31,				Sept. 30,
(In thousands)		2009				2008				2008
Construction and land development
Residential		$	57,663			$	129,899			$	192,460
Commercial			128,636				209,297				226,763
			186,299				339,196				419,223
Individuals			41,812				56,047				65,766
			228,111				395,243				484,989
Real estate mortgage
Residential real estate
Adjustable			325,912				328,992				316,484
Fixed rate			89,456				95,456				93,385
Home equity mortgages			83,929				84,810				84,357
Home equity lines			59,664				58,502				59,692
			558,961				567,760				553,918
Commercial real estate			584,515				557,705				539,406
			1,143,476				1,125,465				1,093,324
Commercial and financial			65,954				82,765				88,549
Installment loans to individuals			66,739				72,908				75,296
Other loans			286				347				468
Total		$	1,504,566			$	1,676,728				$1,742,626

Overall loan growth was negative when comparing outstanding balances at September 30, 2009 to September 30, 2008, as a result of the economic recession, including lower demand for commercial loans, and the Company’s successful divestiture of residential construction and land development loans (including $38 million and $29 million that were sold during the third and fourth quarters of 2008, respectively). By reducing the Company’s exposure to residential construction and development loans, the overall risk profile has improved, and we seek better earnings performance and reduced risk in future quarters.

As shown in the table above, commercial real estate mortgage loans increased $45,109,000 or 8.4 percent from September 30, 2008 to $584,515,000 at September 30, 2009 while residential mortgage loans combined increased $5,043,000 or 0.9 percent to $558,961,000. More than offsetting the net increase in real estate mortgages were declines from September 30, 2008 in residential construction and land development loans of $134,797,000 or 70.0 percent to $57,663,000 at September 30, 2009, commercial construction and land development loans of $98,127,000 or 43.3 percent to $128,636,000, residential construction and lot loans to individuals of $23,954,000 or 36.4 percent to $41,812,000, commercial and financial loans of $22,595,000 or 25.5 percent to $65,954,000, and installment loans to individuals of $8,557,000 or 11.4 percent to $66,739,000 at September 30, 2009.

Construction and land development loans, including loans secured by commercial real estate, were comprised of the following types of loans at September 30, 2009 and September 30, 2008:

September 30		2009												2008
(In millions)		Funded				Unfunded				Total				Funded				Unfunded				Total
Construction and land development*
Residential:
Condominiums		$	9.0			$	0.2			$	9.2			$	32.6			$	4.2			$	36.8
Town homes			—				—				—				21.7				—				21.7
Single family residences			7.1				1.4				8.5				37.2				7.1				44.3
Single family land & lots			25.4				0.4				25.8				70.2				0.4				70.6
Multifamily			16.1				—				16.1				30.7				12.6				43.3
			57.6				2.0				59.6				192.4				24.3				216.7
Commercial:
Office buildings			13.8				0.6				14.4				27.8				2.1				29.9
Retail trade			23.0				0.9				23.9				68.5				8.9				77.4
Land			50.8				0.9				51.7				73.9				11.7				85.6
Industrial			8.2				0.4				8.6				20.7				0.6				21.3
Healthcare			4.8				1.5				6.3				—				—				—
Marina			28.1				0.2				28.3				30.5				3.9				34.4
Other			—				—				—				5.4				0.9				6.3
			128.7				4.5				133.2				226.8				28.1				254.9
			186.3				6.5				192.8				419.2				52.4				471.6
Individuals:
Lot loans			30.7				—				30.7				38.4				—				38.4
Construction			11.1				6.8				17.9				27.4				11.6				39.0
			41.8				6.8				48.6				65.8				11.6				77.4
Total		$	228.1			$	13.3			$	241.4			$	485.0			$	64.0			$	549.0