Seacoast Banking Corp. of Florida's earnings, stock price, and credit quality have suffered during a statewide housing slump, but Dennis S. Hudson 3rd, its chairman and chief executive, says he is not rattled.
Chargeoffs are still miniscule, Seacoast's branches are in some of the state's most attractive markets, and its funding costs are still significantly below the industry average, Mr. Hudson said in an interview last month. Meanwhile, the $2.3 billion-asset Stuart company's stock price has rebounded somewhat after falling to a four-year low a month ago.
Mr. Hudson said that he has no plans to veer from a strategy that has made Seacoast "arguably … the most valuable bank franchise in the state today."
That means Seacoast will ride out the slowdown in the housing market and will look to bulk up strategically within its home state, instead of chasing growth elsewhere, he said.
"We are in arguably the best growth markets in the United States," Mr. Hudson said. "We don't want to dilute that part of the story."
On July 25, Seacoast announced that second-quarter earnings dropped 25% from a year earlier, to $4.8 million, largely as a result of an increase it its loan-loss provision. The company also said that nonperforming assets jumped 2,500%, to $15.5 million.
Since that report Seacoast's shares have been up and down. They closed at four-year low of $15.62 on Aug. 3, rose nearly 28% in the following six days, and then fell 10% on Aug. 10, a day after an analyst at Fox-Pitt, Kelton Inc. downgraded its shares to "underperform," from "in line."
(On Tuesday, Seacoast was one of the day's biggest movers in financial services. At midday shares were up more than 6% from Friday's closing price, to $18.60.)
Mr. Hudson said that the spike in nonperforming assets appears jarring only because nonperformers "have been extremely low for an extended period of time."
He called the $15 million of nonperformers Seacoast currently has on its books "a very manageable number."
The increase "just reflects the realities of the south Florida market, with slowing sale of residential product," Mr. Hudson said. "The key point is that credits are well secured with real estate, and with proper amounts of equity."
He blamed the housing slowdown on an excess of inventory, but he said he already sees signs that things are beginning to turn around.
The excess inventory "needs to burn off, and the good news is it is burning off," Mr. Hudson said. "It was pretty clear … in the last quarter, in virtually every market we operate in, we saw inventory levels improve for the first time in the last 12 months."
J. Corey Shipman, an analyst at Stanford Financial Group, said that he was not overly concerned with the increase in nonperforming assets.
Seacoast's asset quality has deteriorated "along with the state and everyone else in it," Mr. Shipman said. "It's not all that concerning to me at this point, simply because historically, their credit metrics have been fabulous."
In the first six months of this year it charged off $268,000, or 0.03% of its assets. By comparison, the average ratio of chargeoffs to assets at commercial banks with $1 billion to $10 billion of assets was 0.35% in the first six months of this year, according to Federal Deposit Insurance Corp. data.
The bulk of Seacoast's assets are located in Florida's Treasure Coast, a three-county region on the state's eastern shore with attractive population and income demographics.
"Everybody kind of pegs it as being the big growth area in the next 10 to 15 years," said James Schutz, an analyst at Sterne, Agee & Leach Inc.
According to Mr. Hudson, two factors make the region attractive.
"Number one: growth." The counties "are growing at an even faster rate than Florida as a whole," Mr. Hudson said. "Number two: wealth. They are among the wealthiest markets in the state."
For example, Martin County, where Seacoast has 11 branches, has a median household income of $51,635, or 4% above the national average, according to Seacoast figures. Meanwhile, its population is expected to grow 14.47% by 2010, more than twice the national average of 6.26%.
Seacoast has a share of more than 11% in the Treasure Coast market, behind Wachovia Corp., National City Corp., Bank of America Corp., and Riverside National Bank of Florida in Fort Pierce, according to Seacoast's data.
Over the past several years the company has worked to expand by entering contiguous counties through branch building and acquisitions.
In 2005 it entered the Orlando market with its $46.2 million acquisition of the $288 million-asset Century National Bank of Orlando. A year later Seacoast purchased Big Lake National Bank in Okeechobee.
Today, Seacoast has 44 branches in 14 contiguous Florida counties.
Mr. Hudson also cites its funding base, which contains no wholesale deposits, as another strength. As of June 30 more than two-thirds of Seacoast's $1.9 billion of deposits were core ones.
In addition, Mr. Hudson said that nearly all of its loans are to borrowers within its area of operations.
"If you buy a share of Seacoast, you are buying a share of a company that truly owns a deep relationship with its customer base," he said. "Some of the larger, more heavily leveraged companies that are headquartered here in the state have a wholesale component to their franchise that, in my opinion, has less value."
Seacoast's current objective is to fill out its current area, rather than expanding into additional counties, Mr. Hudson said. "We have a lot of growth still to come in Orlando and the Space Coast to the north, as well as Palm Beach to the south. We remained focused on building out of footprint in those markets."
Though he does not have plans to sell the company, he says there is no shortage of suitors.
"We are approached all the time, given our size and our focus and the markets that we operate in," Mr. Hudson said.
Mr. Schutz agreed that "they are not positioning for a sale, but it would be very attractive to a buyer."
