UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

OR

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

For the transition period from                      to                     .

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		(I.R.S. Employer Identification No.)
Organization)
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 o		Non-Accelerated Filer þ		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

Common Stock, $.10 Par Value — 58,913,722 shares as of March 31, 2010

 

 

INDEX

SEACOAST BANKING CORPORATION OF FLORIDA

		PAGE #
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets — March 31, 2010 and December 31, 2009			3-4
Condensed consolidated statements of operations — Three months ended March 31, 2010 and 2009			5
Condensed consolidated statements of cash flows — Three months ended March 31, 2010 and 2009			6-7
Notes to condensed consolidated financial statements			8-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19-51
Item 3. Quantitative and Qualitative Disclosures about Market Risk			52
Item 4. Controls and Procedures			53
Part II OTHER INFORMATION
Item 1. Legal Proceedings			54
Item 1A. Risk Factors			54-69
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			70
Item 3. Defaults upon Senior Securities			70
Item 4. Submission of Matters to a Vote of Security Holders			70
Item 5. Other Information			70
Item 6. Exhibits			71
SIGNATURES			72
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

		March 31,				December 31,
(Dollars in thousands, except share amounts)		2010				2009
ASSETS
Cash and due from banks		$	58,153			$	32,200
Interest bearing deposits with other banks			216,550				182,900
Total cash and cash equivalents			274,703				215,100
Securities:
Available for sale (at fair value)			365,986				393,648
Held for investment (fair values: $ 10,385 at March 31, 2010 and $17,210 at December 31, 2009)			10,228				17,087
TOTAL SECURITIES			376,214				410,735
Loans held for sale			3,609				18,412
Loans			1,373,278				1,397,503
Less: Allowance for loan losses			(43,719	)			(45,192	)
NET LOANS			1,329,559				1,352,311
Bank premises and equipment, net			38,409				38,932
Other real estate owned			19,076				25,385
Other intangible assets			3,806				4,121
Other assets			74,590				86,319
		$	2,119,966			$	2,151,315
LIABILITIES
Deposits		$	1,759,433			$	1,779,434
Federal funds purchased and securities sold under agreements to repurchase, maturing within 30 days			95,708				105,673
Borrowed funds			50,000				50,000
Subordinated debt			53,610				53,610
Other liabilities			10,032				10,663
			1,968,783				1,999,380

CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries

		March 31,				December 31,
(Dollars in thousands, except share amounts)		2010				2009
SHAREHOLDERS’ EQUITY
Preferred stock, par value $0.10 per share, authorized 4,000,000 shares, issued and outstanding 2,000 shares of Series A			45,311				44,999
Warrant for purchase of shares of common stock at $6.36 per share			3,123				3,123
Common stock, par value $0.10 per share, authorized 130,000,000 shares, issued 58,938,221 and outstanding 58,913,722 shares at March 31, 2010, and issued 58,921,668 and outstanding 58,867,229 shares at December 31, 2009			5,891				5,887
Other shareholders’ equity			96,858				97,926
TOTAL SHAREHOLDERS’ EQUITY			151,183				151,935
		$	2,119,966			$	2,151,315

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Seacoast Banking Corporation of Florida and Subsidiaries

		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2010				2009
Interest and fees on loans		$	18,377			$	23,160
Interest and dividends on securities			3,796				4,004
Interest on federal funds sold and other investments			239				148
TOTAL INTEREST INCOME			22,412				27,312
Interest on deposits			4,467				7,987
Interest on borrowed money			732				1,151
TOTAL INTEREST EXPENSE			5,199				9,138
NET INTEREST INCOME			17,213				18,174
Provision for loan losses			2,068				11,652
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			15,145				6,522
Noninterest income
Other income			4,560				4,982
Securities gains			2,100				0
TOTAL NONINTEREST INCOME			6,660				4,982
TOTAL NONINTEREST EXPENSES			23,369				19,335
LOSS BEFORE INCOME TAXES			(1,564	)			(7,831	)
Benefit for income taxes			0				(3,071	)
NET LOSS			(1,564	)			(4,760	)
Preferred stock dividends and accretion of preferred stock discount			937				937
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS		$	(2,501	)		$	(5,697	)
PER SHARE COMMON STOCK:
Net loss diluted		$	(0.04	)		$	(0.30	)
Net loss basic			(0.04	)			(0.30	)
Cash dividends declared			0.00				0.01
Average shares outstanding — diluted			58,845,822				19,069,437
Average shares outstanding — basic			58,845,822				19,069,437

See notes to condensed consolidated financial statements.

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

		Three Months Ended
		March 31,
(Dollars in thousands)		2010				2009
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Interest received		$	22,594			$	27,129
Fees and commissions received			4,634				4,795
Interest paid			(5,185	)			(9,648	)
Cash paid to suppliers and employees			(18,136	)			(19,542	)
Income taxes received			20,797				0
Origination of loans held for sale			(35,750	)			(45,936	)
Proceeds from loans held for sale			50,553				39,905
Net change in other assets			(291	)			131
Net cash provided by (used in) operating activities			39,216				(3,166	)
Cash flows from investing activities
Maturities of securities available for sale			33,794				9,485
Maturities of securities held for investment			1,454				1,217
Proceeds from sale of securities available for sale			43,481				250
Proceeds from sale of securities held for investment			5,452				0
Purchases of securities available for sale			(56,751	)			(35,967	)
Net new loans and principal repayments			17,288				27,314
Proceeds from sale of loans			700				0
Proceeds from the sale of other real estate owned			5,162				603
Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank stock			0				181
Additions to bank premises and equipment			(264	)			(429	)
Net cash provided by investing activities			50,316				2,654
Cash flows from financing activities
Net increase (decrease) in deposits			(20,003	)			3,876
Net decrease in federal funds purchased and repurchase agreements			(9,966	)			(4,549	)
Stock based employee benefit plans			40				64
Dividends paid			0				(580	)
Net cash used in financing activities			(29,929	)			(1,189	)
Net increase (decrease) in cash and cash equivalents			59,603				(1,701	)
Cash and cash equivalents at beginning of period			215,100				151,192
Cash and cash equivalents at end of period		$	274,703			$	149,491

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

		Three Months Ended
		March 31,
(Dollars in thousands)		2010				2009
Reconciliation of net loss to net cash provided by (used in) operating activities
Net loss		$	(1,564	)		$	(4,760	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			790				886
Amortization (accretion) of premiums and discounts on securities, net			13				(147	)
Other amortization and accretion			134				265
Change in loans held for sale, net			14,803				(6,031	)
Provision for loan losses			2,068				11,652
Gains on sale of securities			(2,100	)			0
Gains on sale of loans			(87	)			(153	)
Losses on sale and write-downs of other real estate owned			3,825				183
Losses (gains) on disposition of fixed assets			1				(20	)
Change in interest receivable			350				15
Change in interest payable			14				(510	)
Change in prepaid expenses			981				193
Change in accrued taxes			20,975				(2,874	)
Change in other assets			(291	)			131
Change in other liabilities			(696	)			(1,996	)
Net cash provided by (used in) operating activities		$	39,216			$	(3,166	)
Supplemental disclosures of non-cash investing activities:
Fair value adjustment to available for sale securities		$	1,049			$	4,610
Transfer of loans to other real estate owned			2,678				8,279

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 three-month period ended March 31, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010 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, 2009.

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 the allowance for loan losses and the reserve for unfunded lending commitments, fair value of certain financial instruments, realization of deferred tax assets, and contingent liabilities.

NOTE B — RECENT ACCOUNTING STANDARDS

Accounting Standards Update No. 2010-6, Topic 820 — Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements (“ASU 2010-6”)

ASU 2010-6 amends Subtopic 820-10 with new disclosure requirements and clarification of existing disclosure requirements. New disclosures required include the amount of significant transfers in and out of levels 1 and 2 fair value measurements and the reasons for the transfers. In addition, the reconciliation for level 3 activity will be required on a gross rather than net basis. ASU 2010-6 provides additional guidance related to the level of disaggregation in determining classes of assets and liabilities and disclosures about inputs and valuation techniques. The amendments are effective for annual or interim reporting periods beginning after December 15, 2009, except for the requirement to provide the reconciliation for level 3 activities on a gross basis which will be effective for fiscal years beginning after December 15, 2010.

NOTE C — SUBSEQUENT EVENTS

In preparing these condensed consolidated financial statements, subsequent events were evaluated through the time the condensed consolidated financial statements were issued. Condensed consolidated financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the Securities and Exchange Commission. In conjunction with applicable accounting standards, all material subsequent events have been either recognized in the financial statements or disclosed in the notes to the condensed consolidated financial statements.

NOTE D — BASIC AND DILUTED LOSS PER COMMON SHARE

Equivalent shares of 1,140,000 and 1,773,000 related to stock options, stock settled appreciation rights and warrants for the periods ended March 31, 2010 and 2009, respectively, were excluded from the computation of diluted EPS because they would have been anti-dilutive.

		Three Months Ended
		March 31,
(Dollars in thousands, except per share data)		2010				2009
Basic:
Net loss available to common shareholders		$	(2,501	)		$	(5,697	)
Average shares outstanding			58,845,822				19,069,437
Basic EPS		$	(0.04	)		$	(0.30	)
Diluted:
Net loss available to common shareholders		$	(2,501	)		$	(5,697	)
Average shares outstanding			58,845,822				19,069,437
Diluted EPS		$	(0.04	)		$	(0.30	)

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. ASC 820 provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased. ASC 820 also 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 March 31, 2010 and 2009 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)
March 31, 2010
Available for sale securities (3)		$	365,986			$	—			$	365,986			$	—
Loans held for sale			3,609				—				3,609				—
Loans (1)			38,472				—				6,513				31,959
Other real estate owned (2)			19,076				—				341				18,735
Long-lived assets held for sale (2)			1,676				—				1,676				—
March 31, 2009
Available for sale securities (3)		$	349,181			$	—			$	349,181			$	—
Loans held for sale			8,196				—				8,196				—
Loans (1)			42,404				—				11,840				30,564
Other real estate owned (2)			12,684				—				12,684				—
Long-lived assets held for sale (2)			—				—				—				—

When appraisals are used to determine fair value and the appraisals are based on a market approach, the related loan’s fair value is classified as Level 2 input. The fair value of loans based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, is classified as Level 3 input.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarterly valuation process.

During the first quarter 2010 transfers into and out of level 2 fair value for available for sale securities consisted of investment purchases, sales, maturities and principal repayments.

For loans classified as level 2 the transfers in totaled $2.4 million consisting of loans that became impaired during the first quarter. Transfers out consisted of valuation write-downs of $135,000, foreclosures of $100,000 migrating to other real estate owned (“OREO”) and other reductions (including principal payments) totaling $115,000. No sales were recorded.

For OREO classified as level 2 during the first quarter transfers out totaled $2,628,000 consisting of valuation write-downs of $72,000 and sales of $2,556,000 and transfers in consisted of foreclosed loans totaling $131,000.

The following table shows the carrying value and fair value of the Company’s financial assets and financial liabilities as of March 31, 2010:

		March 31, 2010
		Carrying
(Dollars in thousands)		Value				Fair Value
Financial Assets
Cash and cash equivalents		$	274,703			$	274,703
Securities			376,214				376,371
Loans, net			1,329,559				1,338,252
Loans held for sale			3,609				3,609
Financial Liabilities
Deposit liabilities			1,759,433				1,768,987
Borrowings			145,708				148,680
Subordinated debt			53,610				17,200

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 March 31, 2010:

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 discounted cash flow analysis and the Company’s current incremental borrowing rate for similar instruments.

NOTE F — IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES

At March 31, 2010 and 2009, the Company’s recorded investments in impaired loans and the related valuation allowances were as follows:

		2010								2009
		Recorded				Valuation				Recorded				Valuation
(Dollars in thousands)		Investment				Allowance				Investment				Allowance
Impaired loans without an allowance		$	57,225			$	0			$	66			$	0
Impaired loans with an allowance			99,290				12,358				116,706				6,632
		$	156,515			$	12,358			$	116,772			$	6,632

Impaired loans also include loans that have been modified in troubled debt restructurings (“TDRs”) where concessions to borrowers who experienced financial difficulties have been granted. At March 31, 2010 and 2009, accruing TDRs totaled $60.0 million and $3.3 million, respectively.

The valuation allowance is included in the allowance for loan losses. The impaired loans were measured for impairment based primarily on the value of underlying collateral.

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 were $96,321,000 and $163,000, respectively, at March 31, 2010 and $109,381,000 and $4,484,000, respectively, at March 31, 2009.

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 condensed consolidated financial statements on March 31, 2010 through the issuance of those condensed consolidated financial statements included in this Quarterly Report on Form 10-Q on May 10, 2010. No material events were identified requiring recognition and/or disclosure in the condensed consolidated financial statements.

NOTE H — EQUITY CAPITAL

A stock offering was completed during April of 2010 adding $50 million of Series B Mandatorily Convertible Noncumulative Nonvoting Preferred Stock (“Series B Preferred Stock”) as permanent capital, resulting in approximately $46.9 million in additional Tier 1 risk-based equity, net of issuance costs. Approximately $14.1 million of the sale is unfunded pending approval by the Federal Reserve Bank. The shares of Series B Preferred Stock are mandatorily convertible into common shares upon Shareholder approval.

The following presentation provides proforma information for selected financial data reflecting the effect of the stock offering:

		March 31, 2010
(Dollars in thousands)		As Stated				Pro Forma(1)
Total assets		$	2,119,966			$	2,166,842
Total shareholders’ equity			151,183				198,059
Common shareholders’ equity			105,872				152,748
Book value per common share			1.80				1.64
Tier 1 capital ratio			13.83				17.47
Total risk-based capital ratio			15.29				18.75
Tier 1 leverage ratio			8.86				10.95
Common shares outstanding			58,913,722				93,396,480

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 March 31, 2010, 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 8.50% and a total risk-based capital ratio of at least 12.00% 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 first quarter of 2010, the Company’s banking subsidiary reduced by $33.0 million the letters of credit issued by the Federal Home Loan Bank (“FHLB”) used to satisfy a pledging requirement. Letters of credit outstanding with the FHLB sum to $43.0 million at March 31, 2010. The letters of credit have 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. 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 for investment at March 31, 2010 and December 31, 2009 are summarized as follows:

		March 31, 2010
		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		$	4,191			$	2			$	(1	)		$	4,192
Mortgage-backed securities of Government Sponsored Entities			57,495				408				(15	)			57,888
Collateralized mortgage obligations of Government Sponsored Entities			229,104				6,467				(3	)			235,568
Private collateralized mortgage obligations			65,821				133				(2,717	)			63,237
Obligations of state and political subdivisions			2,021				48				(3	)			2,066
Other			3,035				—				—				3,035
		$	361,667			$	7,058			$	(2,739	)		$	365,986
SECURITIES HELD FOR INVESTMENT
Private collateralized mortgage obligations		$	5,996			$	105			$	—			$	6,101
Obligations of state and political subdivisions			4,232				56				(4	)			4,284
		$	10,228			$	161			$	(4	)		$	10,385

		December 31, 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		$	3,689			$	2			$	(3	)		$	3,688
Mortgage-backed securities of Government Sponsored Entities			60,154				719				(325	)			60,548
Collateralized mortgage obligations of Government Sponsored Entities			250,762				5,219				(733	)			255,248
Private collateralized mortgage obligations			70,719				569				(2,220	)			69,068
Obligations of state and political subdivisions			2,021				49				(7	)			2,063
Other			3,033				—				—				3,033
		$	390,378			$	6,558			$	(3,288	)		$	393,648
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of Government Sponsored Entities		$	288			$	1			$	—			$	289
Private collateralized mortgage obligations			12,565				73				(1	)			12,637
Obligations of state and political subdivisions			4,234				55				(5	)			4,284
		$	17,087			$	129			$	(6	)		$	17,210

Sales of securities for the three month period ended March 31, 2010, were $59,167,000 with gross gains of $2,100,000 and no losses. Of the $59,167,000, proceeds of $10,234,000 settled in April 2010. Proceeds from sales of securities available for sale for the three-month period ended March 31, 2009, were $250,000 with no gross gains or losses.

Securities with a carrying value of $298,644,000 and $320,768,000 and a fair value of $298,650,000 and $320,775,000 at March 31, 2010 and December 31, 2009, respectively, were pledged as collateral for repurchase agreements, United States Treasury deposits, and other public and trust deposits.

The amortized cost and fair value of securities at March 31, 2010, 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		$	—			$	—			$	3,693			$	3,695
Due after one year through five years			1,673				1,685				498				497
Due after five years through ten years			2,559				2,599				1,771				1,814
Due after ten years			—				—				250				252
			4,232				4,284				6,212				6,258
Mortgage-backed securities of Government Sponsored Entities			—				—				57,495				57,888
Collateralized mortgage obligations of Government Sponsored Entities			—				—				229,104				235,568
Private collateralized mortgage obligations			5,996				6,101				65,821				63,237
No contractual maturity			—				—				3,035				3,035
		$	10,228			$	10,385			$	361,667			$	365,986

The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flows analyses, using observable market data where available. The tables below indicate the amount of securities with unrealized losses and period of time for which these losses were outstanding at March 31, 2010 and December 31, 2009, respectively.

		March 31, 2010
		Less than 12 months								12 months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities		$	497			$	(1	)		$	—			$	—			$	497			$	(1	)
Mortgage-backed securities of Government Sponsored Entities			20,064				(15	)			—				—				20,064				(15	)
Collateralized mortgage obligations of Government Sponsored Entities			7,856				(3	)			—				—				7,856				(3	)
Private collateralized mortgage obligations			28,516				(751	)			15,386				(1,966	)			43,902				(2,717	)
Obligations of state and political subdivisions			—				—				1,146				(7	)			1,146				(7	)
Total temporarily impaired securities		$	56,933			$	(770	)		$	16,532			$	(1,973	)		$	73,465			$	(2,743	)

		December 31, 2009
		Less than 12 months								12 months or longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities		$	2,489			$	(3	)		$	—			$	—			$	2,489			$	(3	)
Mortgage-backed securities of Government Sponsored Entities			32,519				(325	)			—				—				32,519				(325	)
Collateralized mortgage obligations of Government Sponsored Entities			57,438				(733	)			—				—				57,438				(733	)
Private collateralized mortgage obligations			18,211				(115	)			18,498				(2,106	)			36,709				(2,221	)
Obligations of state and political subdivisions			—				—				1,542				(12	)			1,542				(12	)
Total temporarily impaired securities		$	110,657			$	(1,176	)		$	20,040			$	(2,118	)		$	130,697			$	(3,294	)

The Company owned 16 individual investment securities totaling $73.5 million with aggregate gross unrealized losses at March 31, 2010. Based on a review of each of the securities in the investment securities portfolio at March 31, 2010, the Company concluded that it expected to recover the amortized cost basis of its investment.

Approximately $2.7 million of the unrealized losses at March 31, 2010 pertain to private label securities secured by collateral originated in 2005 and prior with a fair value of $43.9 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.

At March 31, 2010, the Company also had $18,000 of unrealized losses on mortgage-backed securities of government sponsored entities having a fair value of $27.9 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 $7,000 at March 31, 2010. 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 cast basis of these securities.

As of March 31, 2010, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its investment securities that have losses. Therefore, management does not consider any investment to be other-than-temporarily impaired at March 31, 2010.

Included in other assets was $14.9 million at March 31, 2010 and December 31, 2009 of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. At March 31, 2010, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $14.9 million of cost method investment securities.

NOTE K — INCOME TAXES

The tax benefit for the net loss for the first quarter of 2010 totaled $0.6 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 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 from the net operating loss carryforwards. At March 31, 2010 the Company has approximately $36 million in its deferred tax valuation allowance related to its net operating loss carryforwards.

NOTE L — COMPREHENSIVE LOSS

At March 31, 2010 and 2009, comprehensive loss was as follows:

		Three Months Ended
		March 31,
(Dollars in thousands)		2010				2009
Net loss		$	(1,564	)		$	(4,760	)
Unrealized gains on securities available for sale (net of tax)			1,614				2,826
Net reclassification adjustment			(970	)			0
Comprehensive loss		$	(920	)		$	(1,934	)

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

FIRST QUARTER 2010

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. For purposes of the following discussion, the words the “Company,” “we,” “us,” and “our” refer to the combined entities of Seacoast Banking Corporation of Florida and its direct and indirect wholly owned subsidiaries.

NEW OFFICES / CLOSURES / RELOCATIONS

Seacoast National consolidated and opened a number of branch offices during 2009. 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 and our Middle River office in Ft. Lauderdale was closed on December 1, 2009, to reduce overhead and rationalize cost with future growth opportunities. Customers of these offices are now served by our PGA Boulevard office.

Additions to bank premises and equipment over the past 12 months have been more than offset by depreciation of $3.4 million over the same period and $1.7 million for closed offices (net of $0.9 million in write-downs in fair value) transferred to other assets, resulting in a net decrease of $5,276,000 in bank premises and equipment at March 31, 2010, compared to March 31, 2009.

EARNINGS SUMMARY

Net loss available to common shareholders for the first quarter of 2010 totaled $2,501,000 or $0.04 per average common diluted share, significantly improved when compared to losses in 2009 for the fourth, third, second and first quarters of $39,086,000 or $0.73 per average common diluted share, $41,714,000 or $1.21 per average common diluted share, $63,937,000 or $3.35 per average common diluted share, and $5,697,000 or $0.30 per average common diluted share, respectively. The better performance for the first quarter of 2010 reflects lower credit costs.

As forecast, the net interest margin was improved slightly, increasing 11 basis points during the first quarter of 2010 from the fourth quarter of 2009, and 4 basis higher than for the first quarter of 2009. The Company has continued to benefit from lower rates paid for interest bearing liabilities due to the Federal Reserve’s reduction in interest rates, as well as, an improved mix of deposits. The average cost of interest bearing liabilities was 13 basis points lower for the first quarter of 2010, compared to fourth quarter 2009, and was 12 basis points lower for the fourth quarter of 2009, compared to the third quarter of 2009, 15 basis points lower for the third quarter of 2009, compared to second quarter 2009, and 40 basis points lower for the second quarter of 2009, compared to first quarter 2009, a total reduction of 80 basis points over the last twelve months. The improved mix of deposits reflects the continued success of our retail deposit growth initiatives.

Noninterest income totaled $4.6 million for the first quarter of 2010, compared to $4.6 million for the fourth quarter of 2009 and $5.0 million for the first quarter of 2009. Signs of improved stability in home prices and greater transaction volumes kept fee income from residential real estate production close to fourth quarter 2009’s result. Revenue from wealth management services were $0.1 million lower and service charges on deposits were $0.2 million lower when compared to first quarter 2009 and were offset by improved results in marine finance fees, and both debit card and merchant income for the first quarter of 2010. Consumer activity and spending has been adversely affected by economic conditions and directly affects many of the Company’s fee-based business activities.

Noninterest expenses increased by $2.5 million versus the prior year’s fourth quarter result, and were up $4.0 million compared to the first quarter of 2009. Overhead related to salaries and wages, employee benefits, outsourced data processing costs, occupancy and furniture and equipment expenses, and marketing expenses have been relatively stable year over year. The increase for both periods was primarily a result of losses on other real estate owned and other asset dispositions, increasing by $2.7 million and $3.6 million over each of the periods compared, respectively, reflecting stressed economic conditions.

Our provision for loan losses was substantially lower than in the fourth and first quarters of 2009, with $2.1 million of provisioning for loan losses for the first quarter of 2010 compared to $41.5 million and $11.7 million for the fourth and first quarter of 2009, respectively. Provisions for loans losses were higher during 2009 as a result of higher net charge-offs and the Company increasing its allowance for loan losses to loans outstanding ratio to 3.23 percent at December 31, 2009, up 148 basis points from December 31, 2008. The allowance for loan losses to loans outstanding ratio at March 31, 2010 was 3.18 percent.

CRITICAL ACCOUNTING ESTIMATES

Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions 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; and

•

contingent liabilities.

The following is a 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 27-29 and 37-44 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 March 31, 2010, outstanding securities designated as available for sale totaled $365,986,000. The fair value of the available for sale portfolio at March 31, 2010 was more than historical amortized cost, producing net unrealized gains of $4,319,000 that have been included in other comprehensive income (loss) as a component of shareholders’ equity (net of taxes). The Company made no change to the valuation techniques used to determine the fair values of securities during 2010 and 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 currently is investment grade. These securities, except for approximately $6.3 million of securities issued by states and their political subdivisions, as of March 31, 2010, generally are traded in liquid markets. U.S. Treasury and U.S. Government agency obligations totaled $297.6 million, or 81 percent of the total available for sale portfolio. The remainder of the portfolio primarily consists of private label securities secured by collateral originated in 2005 or prior. The collateral underlying these mortgage investments are primarily 30- and 15-year fixed rate and 10/1 adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those investments 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. Based on our internal review procedures and the fair values provided by the pricing services, we believe that the fair values provided by the pricing services are consistent with the principles of ASC 820. 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 factors, 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 March 31, 2010, the same as at year-end 2009. The FHLB had eliminated its dividend for the first quarter of 2009 but has since reinstated dividends. The FHLB also instituted quarterly rather than daily repurchases of FHLB activity-based stock in February 2009. The Company accounts for its FHLB stock based on the industry guidance in ASC 942, Financial Services—Depository and Lending, 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 March 31, 2010 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

At March 31, 2010, the Company has net deferred tax assets of $18.4 million which are supported by tax planning strategies that could produce gains from transactions involving bank premises, investments, and other items that could be implemented during the NOL carry forward period.

As a result of the losses incurred in 2008 and 2009, the Company was and is in a three-year cumulative pretax loss position. 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, the Company has recorded deferred tax valuation allowances for its net operating loss carryforwards totaling approximately $36 million at March 31, 2010. Should the economy show signs of improvement and our credit costs continue to moderate, management anticipates that increased reliance on its forecast of future taxable earnings would result in tax benefits as the recording of valuation allowances would no longer be necessary.

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. At March 31, 2010 and 2009, the Company had $150,000 and $0, respectively, accrued for contingent liabilities.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income (on a fully taxable equivalent basis) for the first quarter of 2010 totaled $17,288,000, decreasing from 2009’s fourth quarter by $230,000 or 1.3 percent, and lower than first quarter 2009’s result by $953,000 or 5.2 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)
First quarter 2009		$	18,241				3.44	%
Second quarter 2009			18,987				3.65
Third quarter 2009			19,101				3.74
Fourth quarter 2009			17,518				3.37
First quarter 2010			17,288				3.48

Fully taxable equivalent net interest income is a common term and measure used in the banking industry but is not a term used under 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.

		First				Fourth				Third				Second				First
		Quarter				Quarter				Quarter				Quarter				Quarter
		2010				2009				2009				2009				2009
		(Dollars in thousands)
Non-taxable interest income		$	148			$	145			$	105			$	135			$	139
Tax Rate			35	%			35	%			35	%			35	%			35	%
Net interest income (TE)		$	17,288			$	17,518			$	19,101			$	18,987			$	18,241
Total net interest income (not TE)			17,213				17,444				19,051				18,920				18,174
Net interest margin (TE)			3.48	%			3.37	%			3.74	%			3.65	%			3.44	%
Net interest margin (not TE)			3.46				3.35				3.73				3.64				3.43

Net interest margin on a tax equivalent basis improved 11 basis points to 3.48 percent for the first quarter of 2010 compared to the fourth quarter of 2009, and was higher by 4 basis points year over year. During 2009 and for the first quarter of 2010, net interest income and net interest margin have stabilized despite the challenging lending environment and the reduction of interest due to nonaccrual loans. Increased nonaccrual loans have been the primary force that has adversely affected our net interest income and net interest margin when comparing results for 2010 and 2009 to 2008 and prior periods.

The earning asset mix changed year over year and also impacted net interest income. For 2010, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 69.1 percent, compared to 77.7 percent a year ago. Average securities as a percent of average earning assets increased from 16.7 percent a year ago to 20.7 percent during the first quarter of 2010 and federal funds sold and other investments increased to 10.2 percent from 5.6 percent in 2009. 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 49.9 percent of total loans at March 31, 2010 (compared to 53.0 percent at March 31, 2009). This reflects our reduced exposure to commercial construction and land development loans on residential and commercial properties, which declined by $76.1 million and $128.8 million, respectively, from March 31, 2009 to March 31, 2010. Lower yielding residential loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 41.1 percent of total loans at March 31, 2010 (versus 38.0 percent a year ago) (see “Loan Portfolio”). It is expected that these trends in earning asset mix will continue throughout 2010 when compared to prior periods.

The yield on earning assets for the first quarter of 2010 was 4.52 percent, 64 basis points lower than for 2009 in the first quarter, a reflection of the lower interest rate environment and earning asset mix. The Federal Reserve has indicated its intent to continue rates at their historical lows for an extended period. The following table details the yield on earning assets (on a tax equivalent basis) for the past five quarters:

		1st				4th				3rd				2nd				1st
		Quarter				Quarter				Quarter				Quarter				Quarter
		2010				2009				2009				2009				2009
Yield			4.52	%			4.51	%			4.98	%			5.03	%			5.16	%

The yield on loans declined 27 basis points to 5.36 percent over the last twelve months for the same reasons noted above. Nonaccrual loans totaling $96.3 million or 7.0 percent of total loans at March 31, 2010, versus $109.4 million or 6.7 percent of total loans a year ago, have reduced the yield on our loan portfolio. The yield on investment securities was lower as well, decreasing 78 basis points year over year to 3.73 percent for the first quarter of 2010, due primarily to purchases of securities at lower yields available in current markets, which diluted the overall portfolio yield year over year. The dilution in yield on investment securities has been more severe over the past two quarters, with the decline of 78 basis points for first quarter 2010 comparing to a decline of 69 basis points for the fourth quarter of 2009 year over year, versus 6 basis points for the third quarter of 2009 and 22 basis points for second quarter 2009 year over year. Federal funds sold and other investments yielded 0.47 percent for the first quarter of 2010, consistent with first quarter 2009’s yield of 0.49 percent. With the Federal Reserve maintaining the target federal funds rate to 0 to 25 basis points there will be limited opportunities to improve the margin.

Average earning assets for the first quarter of 2010 decreased $134.6 million or 6.3 percent compared to 2009’s first quarter. Average loan balances decreased $276.5 million or 16.6 percent to $1,393.8 million, while average investment securities were $58.0 million or 16.2 percent higher, totaling $417.0 million and average federal funds sold and other investments increased $83.9 million or 69.0 percent to $205.6 million. The decline in average earning assets is consistent with reduced funding as a result of a planned reduction of brokered deposits (only $24.6 remain outstanding at March 31, 2010), the maturity of a $15.0 million advance from the FHLB in November 2009, and lower sweep repurchase arrangements (declining $50.5 million from first quarter a year ago, principally in public funds as a result of lower tax receipts).

Commercial and commercial real estate loan production for 2010 totaled $1.8 million, compared to production for all of 2009 of $14 million. In comparison, commercial and commercial real estate loan production for 2008 totaled $117 million. Period-end total loans outstanding have declined by $259.3 or 15.9 percent in 2010, and declined similarly during first quarter 2009 year over year, by $245.4 million or 13.1 percent. Loan demand remains weak. Economic conditions in the markets the Company serves are expected to continue to be challenging, and although we continue to make loans generally, these conditions are expected to have a negative impact on loan growth during 2010, but possibly to a lessened degree if the consensus opinion that conditions will improve in late 2010 is realized. At March 31, 2010 the Company’s total commercial and commercial real estate loan pipeline was $32 million, versus $47 million at December 31, 2009 and $76 million at March 31, 2009.

A total of 37 applications were received seeking restructured mortgages during the first quarter of 2010, compared to 93, 102, 73 and 48 in the first, second, third and fourth quarters of 2009, respectively. The Company continues to lend, and we have expanded our mortgage loan originations and seek to expand loans to small businesses in 2010. 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 remain a challenge.

Closed residential mortgage loan production for the first quarter of 2010 totaled $33 million, of which $22 million was sold servicing-released. In comparison, $36 million in residential loans were produced in the fourth quarter of 2009, of which $19 million was sold servicing-released $28 million in residential loans were produced in the third quarter of 2009, all of it sold servicing released, $43 million in residential loans were produced in the second quarter of 2009, of which $24 million was sold servicing-released, and $38 million in residential loans were produced in the first quarter of 2009, with $20 million sold servicing-released. Applications for residential mortgages totaled $52 million during the first quarter of 2010, compared to $92 million a year ago for the first quarter of 2009. Existing home sales and home mortgage loan refinancing activity in the Company’s markets have increased, but demand for new home construction is expected to remain soft in 2010.

During the first quarter of 2010, the sale of mortgage backed securities totaling $59.2 million resulted in securities gains of $2,100,000. Because of historically tight spreads it was believed these securities had minimal opportunity to further increase in value. During the first quarter of 2010 maturities (entirely pay-downs) totaled $35.2 million and securities portfolio purchases totaled $56.8 million. In comparison, during the first quarter of 2009 maturities (principally pay-downs) totaled $10.5 million and securities portfolio purchases totaled $36.0 million.

The cost of average interest-bearing liabilities in the first quarter of 2010 decreased 13 basis points to 1.25 percent from fourth quarter 2009 and was 80 basis points lower than for the first quarter of 2009, reflecting the lower interest rate environment. The following table details the cost of average interest bearing liabilities for the past five quarters:

		1st				4th				3rd				2nd				1st
		Quarter				Quarter				Quarter				Quarter				Quarter
		2010				2009				2009				2009				2009
Rate			1.25	%			1.38	%			1.50	%			1.65	%			2.05	%

During 2010, the Company’s retail core deposit focus continues to produce strong growth in core deposit customer relationships when compared to prior year results, and resulted in increased balances which offset most of the planned certificate of deposit runoff during the first quarter of 2010. A total of 1,900 new households were added in 2010, up 8.4 percent compared to fourth quarter 2009 and 1,874 new households in the first quarter of 2009. The improved deposit mix and lower rates paid on interest bearing deposits during 2010 (and last several quarters) reduced the overall cost of interest bearing deposits to 1.22 percent, 89 basis points lower than a year ago. 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 57.2 percent of total average interest bearing deposits for the first quarter of 2010, an improvement compared to the average of 53.3 percent a year ago. The average rate for lower cost interest bearing deposits for the first quarter of 2010 was 0.59 percent, down by 52 basis points from 2009’s rate. CD rates paid were also lower compared to 2009, lower by 119 basis points and averaging 2.06 percent for first quarter 2010. Average CDs (the highest cost component of interest bearing deposits) were 42.8 percent of interest bearing deposits for first quarter 2010, compared to 46.7 percent for 2009.

Average deposits totaled $1,757.0 million during the first quarter of 2010, and were $53.4 million lower compared to 2009, due primarily to a planned reduction of brokered deposits. Total average sweep repurchase agreements for first quarter 2010 were $50.5 million lower versus a year ago, a result of public fund customers maintaining larger balances in repurchase agreements during the first quarter of 2009. Average aggregate amounts for NOW, savings and money market balances increased $31.4 million or 3.8 percent to $849.4 million for the first quarter of 2010 compared to 2009, noninterest bearing deposits decreased $2.2 million or 0.8 percent to $272.1 million, and average CDs decreased by $82.5 million or 11.5 percent to $635.5 million. With the low interest rate environment and lower CD rate offerings available, customers have been more complacent and are leaving more funds in lower cost average balances in savings and other liquid deposit products that pay no interest or a lower interest rate. Average deposits in the Certificate of Deposit Registry program (“CDARs”) that began in mid-2008 that allow customers to have CDs safely insured beyond the FDIC deposit insurance limits, have declined $11.1 million from a year ago to $9.8 million for the first quarter 2010. The higher balance during the first quarter of 2009 reflects the deposit retention efforts that occurred during the financial market disruption a year ago and emphasis on safety at that time. The CDARs product continues to be a favored offering for 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 program expires December 31, 2010.

Average short-term borrowings have been principally comprised of sweep repurchase agreements with customers of Seacoast National, which decreased $50.5 million or 32.8 percent from the first quarter of 2009 but were higher by $11.2 million or 12.1 percent compared to fourth quarter 2009. Public fund clients with larger balances have the most significant influence on average sweep repurchase agreement balances outstanding during the year, with balances typically peaking during the fourth and first quarters 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 $50.0 million. Other than the maturity of a $15.0 million FHLB advance in November 2009, no other changes have occurred to other borrowings 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 have assisted in maintaining a stable net interest margin. Reductions in nonperforming assets also are expected to be accretive to 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 FASB Accounting Standards Codification (“ASC”) 310 as well as, an analysis of homogeneous loan pools not individually evaluated as prescribed under ASC 450. For the first quarter of 2010, the provision for loan losses was $2.1 million, lower than first quarter 2009’s provision for loan losses of $11.7 million, and substantially lower than provisioning in the second, third and fourth quarters of 2009 of $26.2 million, $45.4 million and $41.5 million, respectively. The provision for loan losses for the first quarter of 2010 was $1.4 million less than net charge-offs, which totaled $3.5 million or 1.03 percent (annualized) of average total loans. Delinquency trends show continued stability (see “Nonperforming Assets”).

Net charge-offs during 2008 and 2009 were higher than in prior years due to higher losses in the commercial construction and land development portfolio secured by residential land. The higher charge-offs reflected collateral property valuations declining and the Company reducing its commercial real estate (“CRE”) loan concentrations by selling $43.9 million of loans which accounted for $20.6 million of total net charge-offs during 2009. With timely and more aggressive collection efforts, loan sales, and charge-offs, the Company’s residential construction and land development loans have been reduced to $41.1 million or 3.0 percent of total loans at March 31, 2010 (see “Loan Portfolio”), down from approximately $117.2 million or 7.2 percent of total loans at March 31, 2009. Total CRE loans declined 20.9 percent from $865.6 million at March 31, 2009 to $684.7 million at March 31, 2010. Under regulatory guidelines for commercial real estate concentrations, Seacoast National’s total commercial real estate loans outstanding (as defined in the guidance) represented 267 percent of total risk based capital at March 31, 2010. These remaining lending relationships are monitored and the value of the underlying real estate is evaluated using current appraisals, and where appropriate, discounted cash flow analysis using estimated holding periods and prospective future sales values discounted at rates that we believe appropriate. The reduction in the Company’s exposure to residential construction and development loans should reduce earnings volatility as a result of net charge-offs.

The Company has reduced its concentrations of large individual loan relationships over the periods compared. 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 almost 72 percent from $44.6 million at March 31, 2009 to $12.5 million at March 31, 2010. All of the remaining $12.5 million in loans greater than $4 million are classified as nonperforming, and of the $28.6 million in loans less than $4 million, $9.3 million or 33 percent are nonperforming:

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

																										2010
						2009																2010				Nonperforming
						1st Qtr				2nd Qtr				3rd Qtr				4th Qtr				1st Qtr				1st Qtr				No.
Residential Construction and Land Development
Condominiums		>$4 mil				$	8.4			$	7.9			$	5.3			$	—			$	—			$	—				—
		<$4 mil					7.9				8.8				3.7				6.1				0.9				0.9				1
Town homes		>$4 mil					—				—				—				—				—				—				—
		<$4 mil					4.2				2.3				—				—				—				—				—
Single Family Residences		>$4 mil					6.6				6.5				—				—				—				—				—
		<$4 mil					13.9				10.3				7.1				4.1				3.9				0.6				5
Single Family Land & Lots		>$4 mil					21.8				21.8				5.9				5.9				5.9				5.9				1
		<$4 mil					29.6				21.5				19.5				16.6				15.7				4.9				16
Multifamily		>$4 mil					7.8				7.8				6.6				6.6				6.6				6.6				1
		<$4 mil					17.0				9.8				9.5				8.3				8.1				2.9				4
TOTAL		>$4 mil					44.6				44.0				17.8				12.5				12.5				12.5				2
TOTAL		<$4 mil					72.6				52.7				39.8				35.1				28.6				9.3				26
GRAND TOTAL						$	117.2			$	96.7			$	57.6			$	47.6			$	41.1			$	21.8				28

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 it has originated and holds residential mortgage loans from borrowers with original or current FICO credit scores that are currently 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. Home equity loans (amortizing 10-year loans for home improvements) totaled $89.1 million and home equity lines totaled $60.1 million at March 31, 2010, compared to $85.5 million and $60.3 million at March 31, 2009. Each borrower’s credit was fully documented as part of the Company’s underwriting of home equity lines. The Company never promoted home equity lines using solely credit scoring, and therefore believes this portfolio of loans, primarily to customers with other relationships to Seacoast National, will perform better than portfolios of peers. Both charge-offs and past due ratios have been better than those nationally and for Florida during 2010 and 2009. Net charge-offs for the quarter ended 2010 totaled $156,000 for home equity lines, compared to $2,782,000 for all of 2009, and home equity lines past due 90 days or more and nonaccrual lines were $384,000 and $19,000 at March 31, 2010 and 2009, respectively. Other Florida peer banks have experienced higher losses and delinquencies for their home equity lines.

Congress and bank regulators encouraged recipients of Troubled Asset Relief Program (“TARP”) capital to use such capital to make loans and the Company continues to successfully produce residential mortgages. A total of 259 mortgage applications were taken during the first quarter of 2010 for $52 million with $33 million closed. In addition, a total of 37 applications were received seeking restructured mortgages, compared to 93 in the first quarter of 2009. Existing home sales and home mortgage loan refinancing activity in the Company’s markets has improved, however demand for new home construction is expected to remain soft in 2010.

Since year-end 2009, nonaccrual loans declined by $1.6 million to $96.3 million at March 31, 2010, and were $13.1 million lower than at March 31, 2009 (see “Nonperforming Assets”). Loans have declined $24.2 million or 1.7 percent since year-end 2009 and have declined $259.3 million or 15.9 percent since March 31, 2009 (see “Loan Portfolio”). For the remainder of 2010, the Company’s loan portfolio is expected to experience further declines, but to a lesser degree than 2009.

NONINTEREST INCOME

Noninterest income, excluding gains or losses from securities, totaled $4,560,000 for the first quarter of 2010, $422,000 or 8.5 percent lower than the first quarter of 2009 and $41,000 or 0.9 percent lower than the fourth quarter of 2009. Noninterest income accounted for 20.9 percent of total revenue (net interest income plus noninterest income, excluding securities gains or losses) in the first quarter of 2010 compared to 21.5 percent a year ago. Noninterest income for the first quarter of 2010, and the fourth quarter and first quarters of 2009 is detailed as follows:

		1st Qtr				4th Qtr				1st Qtr
(Dollars in thousands)		2010				2009				2009
Service charges on deposits		$	1,372			$	1,612			$	1,585
Trust income			476				543				558
Mortgage banking fees			421				422				499
Brokerage commissions and fees			286				321				381
Marine finance fees			339				228				345
Debit card income			717				658				608
Other deposit-based EFT fees			93				79				94
Merchant income			465				409				536
Other income			391				329				376
Total		$	4,560			$	4,601			$	4,982

For the first quarter of 2010, revenues from the Company’s wealth management services businesses (trust and brokerage) decreased year over year, by $177,000 or 18.8 percent, and were lower than the fourth quarter of 2009 by $102,000 or 11.8 percent. Of the $177,000 decrease, trust revenue was lower by $82,000 or 14.7 percent and brokerage commissions and fees were lower by $95,000 or 24.9 percent. Included in the $95,000 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. Lower estate and agency fees were the primary cause for the decline in trust income, as these decreased $73,000 and $16,000, respectively, from first quarter 2009’s results. Economic uncertainty is the primary issue affecting clients of the Company’s wealth management services. The Company completed a new strategic plan for wealth management services in 2009 and is implementing it in 2010. Therefore, it is expected that fees from wealth management will begin to grow as the year progresses.

Service charges on deposits for the first quarter of 2010 were $213,000 or 13.4 percent lower year over year versus first quarter 2009, and were $240,000 or 14.9 percent lower than service charges for the fourth quarter of 2009. Overdraft income was the primary cause, as this declined $159,000 in 2010 compared to first quarter 2009 and $222,000 compared to fourth quarter 2009. Overdraft fees represented approximately 74 percent of total service charges on deposits for the first quarter of 2010, compared to 76 percent for all of 2009. 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. Beginning July 1, 2010 all financial institutions must adopt procedures which may have a negative impact on overdraft fee income. The Company estimates that approximately 43% or $1.7 million of overdraft fee income related to the changed procedures will be impacted which could reduce fee income. The Company has a plan which it believes will reduce the impact, but believes overdraft fee income will be reduced.

For 2010, fees from the non-recourse sale of marine loans originated by our Seacoast Marine Division of Seacoast National decreased nominally compared to first quarter 2009, by $6,000, but, compared to fourth quarter 2009 were higher by $111,000 or 48.7 percent. The Seacoast Marine Division originated $25 million during the first quarter of 2010. $20 million in loans were originated in the first and second quarters of 2009, $15 million during the third quarter of 2009, and $15 million during the fourth quarter of 2009 (a total of $70 million for the total year 2009). These production levels are significantly lower than loan production of $143 million and $186 million during 2008 and 2007, respectively, and are reflective of the economic downturn. Of the loans originated during the first quarter of 2010, $20 million (79.5 percent) were sold. This compares to sales as a percentage of production of 97.1 percent, 99.3 percent, and 86.0 percent for all of 2009, 2008 and 2007, respectively. As economic conditions deteriorated over 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 expected to continue to be lower in 2010. The Seacoast Marine Division is headquartered in Ft. Lauderdale, Florida with lending professionals in Florida, 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 the first quarter of 2010, debit card income increased $109,000 or 17.9 percent from 2009’s first quarter, and was $59,000 or 9.0 percent higher than fourth quarter 2009’s income. Other deposit-based electronic funds transfer (“EFT”) income decreased nominally, by $1,000 for 2010 compared to first quarter 2009, and increased $14,000 compared to fourth quarter’s 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^®.

Merchant income was $71,000 or 13.2 percent lower for first quarter 2009, compared to one year earlier, and was $56,000 or 13.7 percent higher when compared to the fourth 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.

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 2010 decreased $78,000 or 15.6 percent from first quarter 2009, but were nominally lower than fourth quarter 2009’s result, by $1,000. Mortgage banking revenue as a component of overall noninterest income was 9.2 percent for the first quarter of 2010, the same as for all of 2009. Sales of residential loans for the first quarter of 2010 totaled $22 million, versus $20 million in 2009’s first quarter. Mortgage revenues are dependent upon favorable interest rates, as well as good overall economic conditions, including the volume of new and used home sales. 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 had more opportunities in markets it serves during 2009 and hopes to continue to take advantage in 2010 of tighter credit and reduced capital limiting 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 first quarter of 2010 increased $15,000 or 4.0 percent compared to a year ago. Operating income from an investment in a limited partnership formed under the auspices of the Community Reinvestment Act improved year over year by $29,000, but most other line items in other income were slightly lower, including check charges, wire transfer fees, and miscellaneous other fees.

NONINTEREST EXPENSES

When compared to first quarter 2009, total noninterest expenses for 2010 increased by $4,034,000 or 20.9 percent to $23,369,000. The primary cause for the increase was net losses on other real estate owned (OREO) and other asset dispositions, increasing by $3,571,000 from $502,000 for the first quarter of 2009 to $4,073,000 for the first quarter of 2010. In addition, other legal and professional fees were $709,000 higher, versus a year ago, and totaled $2,101,000. While these increases are significant, noninterest expenses for 2010 have been in line with our expectations. Salaries, wages and benefits were $430,000 or 5.0 percent lower for first quarter 2010 compared to the same period in 2009. The elimination of bonus compensation for most positions and profit sharing contributions for all associates, reductions in matching contributions associated with salary savings plans, job eliminations, and branch consolidation(s), as well as the freezing of executive salaries, and reduced salary increases for other associates remain in place, thereby containing salary and wage costs. Cost reductions were also achieved in data processing, communication costs, occupancy, and furniture and equipment expenses, all of which declined when comparing the first quarter of 2010 to 2009 for the same period.

Salaries and wages for the first quarter of 2010 decreased by $426,000 or 6.2 percent to $6,462,000 compared to the prior year’s first quarter. Reduced headcount (including the branch closures in 2009), limited accruals for severance payments as compared to a year ago, and lower commission payments due to lower revenues generated from wealth management and weak lending production were the primary causes of the decrease in 2010 compared to first quarter 2009. 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 first quarter of 2009 totaled $241,000, compared to only $5,000 for the first quarter of this year. Base salaries were 5.4 percent lower year over year for the first quarter, with full-time equivalent employees (“FTEs”) totaling 428 at March 31, 2010, 2.1 percent less than the 437 FTEs at March 31, 2009.

As a recipient of funding from the U.S. Treasury’s TARP Capital Purchase Program (“CPP”), the Company is subject to various limitations on senior executive officers’ compensation pursuant the U.S. Treasury’s standards for executive compensation and corporate governance for the period during which the U.S. Treasury holds equity pursuant to the TARP CPP, including common stock which may be issued pursuant to the Warrant issued by the Company to the U.S. Treasury. These standards generally apply to the Company’s chief executive officer, chief financial officer and the three next most highly compensated senior executive officers.

Employee benefits costs decreased nominally, by $4,000 to $1,778,000 from the first quarter of 2009. The Company recognized lower claims experience in the first three months of 2010 for its self-funded health care plan compared to 2009, a decrease of $28,000 versus the first quarter a year ago. In addition, payroll taxes were $30,000 lower due to lower FTE’s for 2010. Offsetting, unemployment compensation costs were $60,000 higher year over year for the first quarter of 2010 due to the state of Florida increasing rates to replenish funding pools for compensation disbursements.

Outsourced data processing costs totaled $1,876,000 for the first quarter of 2010, a decrease of $15,000 or 0.8 percent from a year ago. 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 poor economy (see “Noninterest Income”). Merchant services processing expenses were $70,000 lower than a year ago for the first quarter of 2009. Partially offsetting, core data processing and software maintenance costs were $39,000 and $15,000 higher for the first quarter of 2010, versus a year ago. 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.

Telephone and data line expenditures, including electronic communications with customers and between branch locations and personnel, as well as third party data processors, decreased by $85,000 or 17.5 percent to $399,000 for the first quarter of 2010 when compared to 2009. Improved systems and monitoring of services utilized as well as reducing the number telephone lines (in part due to our branch consolidations) has reduced our communication costs, and these costs should continue to be lower prospectively when compared to prior year.

Total occupancy, furniture and equipment expenses for the first quarter of 2010 decreased $254,000 or 9.1 percent to $2,551,000, year over year, versus the same period in 2009. Included in the $254,000 decrease during 2010 were lease payments for bank premises decreasing $88,000, and lower depreciation and repair and maintenance costs, declining $95,000 and $25,000, respectively. Utility costs (power, lights and water) were reduced as well, lower by $54,000 during the first quarter of 2010, compared to 2009’s first quarter.

For 2010, 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 $168,000 or 34.4 percent to $656,000 when compared to first quarter 2009. Agency production, donations, and public relations expenses were lower by $18,000, $28,000 and $83,000, respectively, during the first quarter of 2010, compared to 2009. Media costs (including newspaper, radio and television) and direct mail costs were more than offsetting, increasing $166,000 and $122,000, respectively, compared to the first quarter of 2009. A focused campaign in our markets targeting the customers of competing financial institutions in our markets and promoting our brand has been underway, thereby causing the increases indicated.

Legal and professional fees increased $709,000 or 50.9 percent, to $2,101,000 for the first quarter of 2010, compared to a year ago for 2009. Legal fees were $195,000 lower in 2010 year over year, primarily due to lower problem assets. Compared to first quarter 2009, regulatory examination fees and CPA fees on an aggregate basis were $14,000 higher for 2010, and professional fees were $890,000 higher reflecting strategic planning assistance. Professional fees have generally been higher during this period of increased regulatory compliance. The Company also uses the consulting services of a former bank regulator who also serves as a director of Seacoast National to assist it with its compliance with the formal agreement and regulatory examinations. For the three months ended March 31, 2010 and 2009, Seacoast National paid $121,000 and $106,000, respectively, for these services. We expect legal fees will continue to be lower for 2010 as a result of fewer new nonperforming loans.

The FDIC assessment for first quarter 2010 totaled $1,006,000. FDIC assessments for the first, second, third and fourth quarters of 2009 totaled $877,000, $2,026,000, $1,007,000 and $1,042,000, respectively. The second quarter 2009 assessment included a special assessment of $976,000, 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 as well as the FDIC’s implementation of a more complex risk-based formula to calculate assessments. The FDIC also mandated the prepayment of assessments for the next three years plus fourth quarter 2009’s assessment that was remitted on December 30, 2009. The amount of the prepayment totaled $14.8 million. The Company anticipates that FDIC insurance costs are likely to remain elevated, with assessments possibly increasing even more depending on the severity of bank failures and their impact to the FDIC’s Deposit Insurance Fund.

Net losses on other real estate owned and other asset dispositions totaled $4,073,000 for the first quarter of 2010, and totaled $502,000 for the same period in 2009. Other real estate owned increased during 2009 and while growth in nonaccrual loans is expected to moderate and decline, costs associated with the management of other real estate owned and other repossessed assets will likely continue to be higher in 2010 as problem assets migrate toward liquidation.

Remaining noninterest expenses increased $241,000 or 12.6 percent to $2,152,000 when comparing the first quarter of 2010 to the same quarter a year ago. Increasing year over year for the first three months of 2010 were employee placement fees (up $47,000, principally headhunter fees), origination fees for marine loan production (up $32,000), and one-time cash settlements regarding a branch lease terminated in 2009 and a trade in Seacoast National’s brokerage subsidiary (each for $150,000). Partially offsetting were decreases in expenditures for stationery and supplies (down $34,000), reduced charge-offs related to robbery and customer fraud (down $42,000), and appraisal fees regarding real estate (down $33,000, for bank directed activity).

INCOME TAXES

No income tax benefit was recorded for the first three month of 2010, consistent with the third and fourth quarters of 2009. In comparison, an income tax benefit of $3.1 million was recorded for the first three months of 2009.

The tax benefit for the net loss for the first quarter of 2010 totaled $0.6 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 (see “Critical Accounting Estimates – Deferred Tax Assets”). The tax benefit for the net loss for the third and fourth quarters of 2009 totaled $29.7 million, and also was offset by a valuation allowance of a like amount. As the economy show signs of improvement and our credit costs moderate, we anticipate that we will be able to place increased reliance on our forecast of future taxable earnings, which would result in realization of future tax benefits.

FINANCIAL CONDITION

CAPITAL RESOURCES

The Company’s equity capital at March 31, 2010 totaled $151.2 million and the ratio of shareholders’ equity to period end total assets was 7.13 percent, compared with 7.06 percent at December 31, 2009, and 9.25 percent at March 31, 2009. Seacoast’s management uses certain “non-GAAP” financial measures in its analysis of the Company’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 Company. 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. As a result, the Company’s capital position remains strong, meeting the general definition of “well capitalized”, with a total risk-based capital ratio of 15.29 percent at March 31, 2010, higher than December 31, 2009’s ratio of 15.16 percent and higher than 14.00 percent at March 31, 2009. The Bank agreed to maintain a Tier 1 capital (to adjusted average assets) (“leverage ratio”) ratio of at least 7.50 percent and a total risk-based capital ratio of at least 12.00 percent as of March 31, 2009 with its primary regulator the Office of the Comptroller of the Current (the “OCC”). Subsequently, as of January 31, 2010, following our capital raise, the Bank agreed to maintain a leverage ratio minimum of 8.50 percent. The agreement with the OCC as to minimum capital ratios does not change the Bank’s status as “well-capitalized” for bank regulatory purposes, to which the Bank is currently in compliance.

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. Prior OCC approval presently is required for any payments of dividends from Seacoast National to the Company.

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.

Beginning in the third quarter of 2008, the Company reduced the dividend per share on common stock to $0.01 and, on May 19, 2009, suspended the payment of dividends on both the common stock and Series A Preferred Stock, as well as all distributions on its trust preferred securities, as a result of Federal Reserve policies related to dividends and other distributions. Dividends will be suspended until such time as dividends are allowed by the Federal Reserve.

As of March 31, 2010, our accumulated deferred interest payments on Series A Preferred Stock was $2,883,000 and our accumulated deferred interest payment on trust preferred securities was $1,183,000.

At March 31, 2010, the capital ratios for the Company and its subsidiary, Seacoast National, were as follows:

		Seacoast				Seacoast				Minimum to be
		(Consolidated)				National				Well Capitalized*
March 31, 2010:
Tier 1 capital ratio			13.83	%			13.38	%			6	%
Total risk-based capital ratio			15.29	%			14.65	%			10	%
Tier 1 leverage ratio			8.86	%			8.56	%			5	%

During April 2010, the Company enhanced capital by issuing Mandatorily Convertible Noncumulative Nonvoting Preferred Stock for total gross proceeds of approximately $50.0 million, including additional shares to CapGen Capital Group III LP (“CapGen”), a Delaware limited partnership. The Company expects to receive total proceeds of approximately $46.9 million from the sale, net of issuance costs (see “Note H – Equity Capital”). Approximately $33 million has been received on April 10, 2010 and approximately $14 million is expected to be issued upon Federal Reserve approval.

LOAN PORTFOLIO

Total loans (net of unearned income) were $1,373,278,000 at March 31, 2010, $259,299,000 or 15.9 percent less than at March 31, 2009, and $24,225,000 or 1.7 percent less than at December 31, 2009. The following table details loan portfolio composition at March 31, 2010, December 31, 2009 and March 31, 2009:

		March 31,				Dec. 31,				March 31,
(In thousands)		2010				2009				2009
Commercial real estate		$	684,673			$	709,285			$	865,552
Residential real estate			564,858				562,660				619,896
Commercial and financial			62,134				61,058				75,448
Consumer			61,422				64,024				71,440
Other loans			191				476				241
Total		$	1,373,278			$	1,397,503			$	1,632,577

Overall loan growth was negative when comparing outstanding balances at March 31, 2010 to prior year, as a result of the economic recession, including lower demand for commercial loans, and the Company’s successful divestiture of specific problem loans (including residential construction and land development loans) through loan sales. Total problem loans sold in 2009 totaled $82 million, with the Company significantly reducing its exposure to construction and land development loans and improving the Company’s overall risk profile.

As shown in the table above, commercial real estate loans decreased $180,879,000 or 20.9 percent from March 31, 2009 to $684,673,000 at March 31, 2010 and residential real estate loans decreased $55,038,000 or 8.9 percent to $564,858,000. The primary cause for the decrease in commercial real estate loans was a reduction in construction and land development loans for residential and commercial properties of $76,159,000 or 65.0 percent and $128,790,000 or 64.0 percent, respectively, to outstanding balances of $41,088,000 and $72,562,000 at March 31, 2010. Partially offsetting, commercial real estate mortgages were higher, increasing by $24,070,000 or 4.4 percent to $571,023,000. Construction and land development loans to individuals included in residential real estate loans were lower as well, declining $12,626,000 or 25.1 percent to $37,607,000. In addition, adjustable rate residential mortgages were lower year over year, by $42,602,000 or 12.8 percent to $290,520,000. Fixed rate residential mortgages, home equity mortgages and home equity lines changed less significantly and totaled $87,608,000, $89,050,000 and $60,073,000 at March 31, 2010. Commercial and financial loans and consumer loans (principally installment loans to individuals) decreased $13,314,000 or 17.6 percent and $10,018,000 or 14.0 percent, respectively, from a year ago to $62,134,000 and $61,422,000 at March 31, 2010, reflecting the impact on lending of the economic downturn.

Construction and land development loans, including loans secured by commercial real estate, were comprised of the following types of loans at March 31, 2010 and March 31, 2009:

March 31		2010												2009
(In millions)		Funded				Unfunded				Total				Funded				Unfunded				Total
Construction and land development*
Residential:
Condominiums		$	0.9			$	—			$	0.9			$	16.3			$	0.4			$	16.7
Town homes			—				—				—				4.2				—				4.2
Single Family Residences			3.9				1.3				5.2				20.5				1.2				21.7
Single Family Land & Lots			21.6				0.1				21.7				51.4				0.4				51.8
Multifamily			14.7				—				14.7				24.8				0.5				25.3
			41.1				1.4				42.5				117.2				2.5				119.7
Commercial:
Office buildings			13.7				—				13.7				17.4				0.6				18.0
Retail trade			3.9				—				3.9				70.0				4.5				74.5
Land			45.7				0.1				45.8				60.9				0.3				61.2
Industrial			2.5				0.1				2.6				9.0				0.8				9.8
Healthcare			—				—				—				5.7				4.0				9.7
Churches & educational facilities			—				—				—				—				—				—
Lodging			—				—				—				0.6				—				0.6
Convenience Stores			—				—				—				—				—				—
Marina			6.8				—				6.8				31.6				2.8				34.4
Other			—				—				—				6.2				—				6.2
			72.6				0.2				72.8				201.4				13.0				214.4
			113.7				1.6				115.3				318.6				15.5				334.1
Individuals:
Lot loans			28.9				—				28.9				34.0				—				34.0
Construction			8.7				5.6				14.3				16.2				7.2				23.4
			37.6				5.6				43.2				50.2				7.2				57.4
Total		$	151.3			$	7.2			$	158.5			$	368.8			$	22.7			$	391.5