South Florida Housing Has Bottomed: Bank CEO

STUART, Fla. ( TheStreet) -- Seacoast Banking Corp. ( SBCF) of Stuart, Fla., has turned the corner, and CEO Dennis Hudson III says that "residential real estate is truly stabilizing" in the bank's market area.

Over the past five years, Seacoast has seen most of its major competitors -- big and small -- disappear, either through failure, merger or forced sale to a competitor.
Seacoast Banking Corp. CEO Dennis S. Hudson III

Hudson says that "the most important job for a CEO is to help an organization face reality, and that in 2007, "staying forward-focused allowed us to have the vision that the real estate collapse was bigger than we ever imagined." The bank "developed processes to quantify what we were dealing with, and the confidence to go out into the market and raise capital."

Seacoast completed several capital raises during 2009 and 2010. The company owes the government $50 million in bailout funds received through the Troubled Assets Relief Program, or TARP. Seacoast returned to operating profitability during the first quarter, although the company still posted a net loss to common shareholders after factoring dividends on preferred shares owned by the government. During the second quarter, the company reported a $176,000 profit to common shareholders.

On Aug. 17, Seacoast announced that it was current on all dividend payments to the U.S. Treasury on government-owned preferred shares and had notified trustees for its trust-preferred securities that all accrued and unpaid dividends on those securities would be made current in September.

The company reported its nonperforming loans had fallen for seven straight quarters, through June 30. At the end of the second quarter, nonperforming assets made up 3.46% of total assets, improving from 5.25% a year earlier. The company's tangible common equity ratio -- which excludes certain intangible assets, such as deferred tax assets -- was 5.84% as of June 30, was up from 5.60% the previous quarter, but down from 6.60% a year earlier. Seacoast said when it announced its second-quarter results that "a future recapture of the deferred tax asset valuation allowance would add (proforma) approximately 200 basis points to the TCE ratio."

The company had $2.1 billion in total assets as of June 30.

Seacoast Banking Corp.'s main subsidiary is Seacoast National Bank, which has 39 branches, with the bulk of operations in Martin, St Lucie, Indian River and Okeechobee counties, in Florida. According to deposit market share data provided by the Federal Deposit Insurance Corp., Seacoast was the largest community bank, ranking third in the four-county area with a 12.13% deposit market share as of June 30, trailing Wells Fargo Bank, NA (the main banking subsidiary of Wells Fargo ( WFC), with an 18% deposit market share and Bank of America NA (held by Bank of America ( BAC) in second place, with a 13% market share.

PNC Bank, NA (Held by PNC Financial Services ( PNC) ranks fourth with a 12.12% market share in the four-county area, followed by SunTrust Bank (A unit of SunTrust ( STI)) in fifth-place with a 9% market share.

Looking back five years, only three of the top-10 competitors -- Seacoast, Bank of America and SunTrust -- have survived. Wachovia, which held the top deposit market share ranking in June 2005, was forced to sell to Wells Fargo in December 2008. Harbor Federal of Fort Pierce sold for a healthy premium in 2006 to National City, which in turn threw in the towel and sold to PNC in December 2008. Other competitors in the four-county area failed, including Riverside National Bank of Fort Pierce, which was sold by the FDIC to TD Bank ( TD), and Washington Mutual, which the FDIC sold to JPMorgan Chase ( JPM).

Hudson says that Seacoast's market share in the four-county area has improved over the past five years to third-place from fourth-place, because "as we ramp up our service levels, the megabanks are doing the opposite," adding "I've never seen anything like it in my career." The company is seeing an increase in coveted noninterest income, with "an 8% growth second quarter, year over year in top line revenues out of fees, since we're seeing a lift in households" served.

One example cited by Hudson is debit card services, which are free at Seacoast. Large banks, including Wells Fargo, are rolling out monthly debit card fees in some market areas in an effort to recapture some of the revenue being lost from the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which limits the interchange fees charged by banks with over $10 billion in assets to merchants to process debit card transactions.

Another example is charging checking account customers to include images of processed checks with monthly statements. This service is free at Seacoast.

Hudson says the bank is "focused on building up momentum and acquiring market share. Our top-line growth is going to have to be driven by market share over the next two years."

With President Obama proposing The American Jobs Act at an address before Congress last Thursday, TheStreet asked Hudson what could be done in Washington to spur the growth of Seacoast's business. "What they can do is create a pro-growth business environment," with "less regulation and a lower tax burden," which the CEO says would spur the recovery of the bank's customers.

Regarding the general state of the banking industry, Hudson says "we need to provide instantaneous clarity for everyone so mortgage servicers, investors and consumers all have certainty with respect to what the rules are. What we have right now is chaos and uncertainty."

Looking at Seacoast Banking Corp's home market, Hudson says that although "where we live the unemployment rate is in the teens...there has been a solid floor established in Florida for most real estate product," adding that the bank is "seeing some small evidence of price increases on continued strong sales, particularly on the low end. If you price a 150,000 to 250,000 home appropriately, you can sell it."

"We're even seeing higher-end homes move, that are priced right," according to Hudson, who adds that "residential realtors are pretty happy these days. The challenge is that distressed property sales can get complicated."

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

More from Stocks

Lotteries Are for Losers: Kick the Habit and Become a Millionaire

Lotteries Are for Losers: Kick the Habit and Become a Millionaire

Bearish Bets: 2 Well-Known Stocks You Should Consider Shorting This Week

Bearish Bets: 2 Well-Known Stocks You Should Consider Shorting This Week

Alphabet's Waymo Is Moving Toward Self-Driving Semi Trucks

Alphabet's Waymo Is Moving Toward Self-Driving Semi Trucks

This 'Modern' Stock Market Needs to Change

This 'Modern' Stock Market Needs to Change

What to Expect From the Markets in 2019 According to an Abbott Downing Executive

What to Expect From the Markets in 2019 According to an Abbott Downing Executive