Seacoast Banking Corporation of Florida (SBCF) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter earnings results conference call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Dennis S. Hudson. Mr. Hudson, you may begin.

Thank you very much and welcome to Seacoast's fourth-quarter 2007 earnings conference call. We want to apologize for the delay -- the small delay there. There was some confusion regarding our pass code, and we wanted to allow enough time for folks to make sure they could get on the call.

Before we begin, I'd like to direct your attention to the statement contained at the end of our press release concerning forward statements. During the call, we're going to be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act, and so our comments are intended to be covered within the meaning of that Act.

We've also posted a few slides on our Website, which we will refer to in our comments. Feel free to visit seacoastbanking.com and click on Presentations at the bottom of the Investor Relations listing to view those slides as we continue with our comments.

With me in the room today is Bill Hahl, our Chief Financial Officer; as well as Doug Gilbert, our Vice Chairman and Chief Credit Officer; Jean Strickland, our Chief Operating Officer; and also Russ Holland, who is in charge of our commercial real estate lending.

Seacoast earnings this quarter continued to be affected by the very soft residential real estate market in Florida. Earnings for the quarter were actually up from last quarter, when we provided a large boost to our reserve, and were $0.10 per share for the quarter and $0.68 per share for the year, excluding a securities restructuring that occurred earlier in the year.

As anticipated, nonperforming loans continued to grow this quarter and grew by about $20 million, with most of the nonperforming loans related to residential development loans and land loans. At year-end, nonperforming loans totaled around $67 million, with a little more than half of the amount comprised of either land loans or development loans related to the residential market. Approximately 30% of our nonperforming loans were various commercial properties, with a good portion of those owned by developers of residential properties who are themselves experiencing cash flow problems.

We also are carrying one low-rise completed condo project construction loan that is located right here in our market, and that comprises around 11% of non-accruals. This project is fully completed and experienced a complete fallout of presold contracts. We believe we are well covered with project equity and are moving forward to foreclosure.

Finally, the balance of non-accruals, which would total approximately 6.5%, would be individual consumer residential properties. During the quarter we saw our charge-offs increase to around $4.5 million, with most of the increase attributable to a chargedown of a residential development acquisition and development loan that was considered impaired earlier in the year. We created a specific reserve for this credit that grew over the past couple of quarters, and this quarter we confirmed the reserve balance as a loss and charged the loan down to reflect the fair market value of the collateral, as the project is now moving into foreclosure.

Unlike other issues affecting the banking industry today, our credit exposures remain relatively straightforward and quantifiable. We were among the first banks in Florida to recognize the impact of the dramatic slowing in residential sales activity in late 2006. And at that time we undertook an extensive review of our developer and builder relationships and have been taking actions since then to reduce these exposures.

Since that time, we have continued to closely monitor on a monthly basis all of those exposures and carefully examine collateral values associated with troubled loans. By aggressively facing current market realities and doing so early on, we will be positioned to more quickly improve our performance in the future as we cycle through this period.

Now I'd like to turn the call over to Bill for a few comments on earnings and the margin, as well as our loan and deposit growth for the quarter. Bill?

Okay. Thanks, Denny. As Denny mentioned, I'm going to cover revenue and loan growth, deposit costs and growth, credit quality impacts for the quarter, and noninterest expenses.

Total revenues for the quarter were $26.6 million compared to $27.1 million in the third quarter of 2007 and were also lower than the $27.4 million the same quarter a year ago. These results reflect solid loan growth for year, offset by the impact of increased non-accrual loans. Non-interest income improved linked-quarter for service charges and EFT fees on deposits, mortgage banking fees, marine finance fees, but were offset by lower wealth management revenues.

Net interest income was increased by greater leverage from seasonal deposit growth, but was offset by the effects of increased non-accrual loans, lower yields on prime-based loans and slower loan growth in the fourth quarter. Also, the net interest margin was impacted by lower floating rate earning asset yields, from rate reductions, and from strong deposit competition, which slowed our ability to immediately reprice our deposits. These factors resulted in reducing interest income for the quarter by $320,000 or 0.85% linked-quarter, and helped drive a $423,000 decline in net interest income.

While the Fed has lowered rates 100 basis points this year and nonperforming assets have increased to approximately 67 million, total revenues for the quarter were down just $482,000, or 1.7%, compared to the first quarter this year. This indicates that we've had good growth in our franchise, as evidenced by annual growth rates for loans and deposits.

Loans grew at an annualized rate of 12% for the first nine months, but loan growth slowed in the fourth quarter and we finished at 9.5% for the year. This was consistent with our prior guidance that loan growth would be likely to be lumpy quarter-to-quarter as a result of unpredictable loan paydowns, on problem loan resolutions, and completed residential construction loan projects.

Going forward, loan growth is likely to be slower in 2008 and vary quarter-to-quarter as a result of the same issues that impacted this quarter. Our expansion in Broward County continues to have favorable loan results, as does our addition of senior lenders in the Orlando market. Loan pipelines in these markets remain good, so we believe loan growth for 2008, while slower, will still contribute to earnings.

Now I have a few comments on deposit growth and cost. Total deposits for the year increased by $96.3 million, or 5.1%. While competition for deposits remained strong throughout the fourth quarter, we were able to lower deposit rates as the Fed lowered its benchmark rate. The total cost of deposits decreased to 2.93%, down 8 basis points linked-quarter, better than the third quarter's result, which increased 13 basis points.

The overall rate paid on interest-bearing liabilities declined 17 basis points to 3.71% linked-quarter. Besides normal seasonal deposit growth this quarter, public funds, customer deposits -- grew from the transfer of deposits from a state-run money fund because of credit concerns related to some of the investments held by the fund.

Consistent with our prior comments, deposit mix year-over-year has resulted in pressure on the net interest margin. Average noninterest-bearing deposits as a percent of total loans declined to 18% compared to 22% a year ago, and average time deposits increased to 32% of total loans compared to 30% a year ago. While competitors initially continued with aggressive deposit offerings in the fourth quarter, many have more recently reduced their rates.

These deposit mix changes and competition will likely continue to pressure the margin, but will be offset by lower interest rates due to future Fed actions to lower interest rates. Therefore, net interest income will depend on loan growth, problem loan resolutions, organic deposit growth, declines in the cost of interest-bearing liabilities, offset by future increases in non-accrual loans and lower yields on prime-based loans.

Management recognized the need to improve organic deposit growth going forward, and has worked with an outside consultant in the fourth quarter to implement new strategies in its retail branches. The objective is to improve deposit mix and have higher deposit growth within the Company's footprint as we emerge from the negative impact of the credit cycle.

Now a few comments on credit quality impacts. As Denny mentioned, nonperforming assets have increased approximately $22 million this quarter to $67.6, million or 3.56% of loans plus other real estate loans -- other real estate outstanding at year-end. As indicated last quarter, nonperforming loan balances will experience variability over the next few quarters, and consequently will produce a drag on net interest margin and net interest income. This quarter, the NPAs reduced net interest income by approximately $1.2 million, and our provision for loan losses totaled $3.8 million, a decline of $4.6 million from the third quarter's provision.

Pro forma operating results without the non-cash provision of $3.8 million totaled $4.2 million, $0.22 per share. This indicates that the Company continues to produce decent pre-provision quarterly earnings, even in a quarter with slower loan growth, and that much progress has been made in growing the franchise and our efforts to date will lead ultimately to improved performance as the impacts of the credit cycle moderate.

Finally, I have a few comments on noninterest expenses. During the third-quarter conference call, we indicated we believe the current quarter overhead run rate would be approximately $19 million for the fourth quarter. Actual noninterest expenses for the fourth quarter totaled $19.8 million. During the fourth quarter, the Company recorded its portion of the VISA litigation and settlement costs and an additional accrual for unfunded loan commitments for a total expense of $700,000. The Company believes that there is a good possibility it will recover these amounts in the future.

Last quarter, we reported cost savings were identified and should total approximately $3.5 million annually, to be fully implemented by the beginning of the second quarter of 2008. Offsetting these cost savings are costs for branch expansions within the Company's footprint and the full-year impacts of the added revenue-producing personnel and market expansion during 2007. In 2007, we've hired additional loan producers and other key personnel to take advantage of growth opportunities in our markets and from the disruption that was occurring in our existing markets. These overhead additions have resulted in loan and deposit growth and increased fee income this year. We are going to evaluate our success in further growing revenues, loans and deposits each quarter in 2008 and make further overhead adjustments as necessary. Denny?

Thanks, Bill. As you just heard, we've made some progress and are prepared to take further action if needed to address overhead in the year ahead. We're pleased in particular with our progress in terms of deposit growth this quarter. We did see more significant seasonal growth in deposits this year -- this quarter, which was welcomed.

It will also be important for us to carefully manage down our deposit costs in the current interest rate environment. I'm also encouraged by the recent rally in the 10-year government, which, if it holds, together with seller pricing concessions, could be very helpful to bringing stability to the housing market in the coming months.

I can't let this moment pass without a few comments regarding our positioning in the industry. While we continue to maintain a very large residential mortgage portfolio or consumer mortgage portfolio, we have never originated, nor have we owned, any exposure to sub-prime lending, Alt A loans, No-Doc loans, Option ARM loans, or any of the so-called exotic residential loans. We have also never engaged in residential loan warehouse lending, nor have we been a purchaser of brokered residential loans. As a result, our consumer and residential mortgage portfolio and its asset quality continues to outperform recent industry trends.

We lost residential market share over the past few years as others aggressively marketed these new exotic mortgages to our customers. Today, those customers are returning to sanity and returning to us, as well as other local providers. So as the industry returns to good old-fashioned blocking and tackling, it's important for us to stay focused on what we do best, and that is building solid, long-term relationships with our customers.

I appreciate the job all of our associates are doing in this very difficult period. They are working long and hard hours under challenging circumstances and deserve all the credit for the improvements we will begin to deliver in the months ahead. And with that, I will turn to call open to questions.

(OPERATOR INSTRUCTIONS) [Michael Paramonte] from Smith Barney.

Yes. I was wondering how secure the dividend is now with this lower earnings?

Right. Well, first of all, if we felt we needed to reduce our dividend, we would certainly say so. I would only point out that while our earnings have been impacted by higher credit costs, and while we're certainly disappointed at that, we have continued to remain profitable.

Most important, however, I think is the fact that our capital ratios remain very strong. In fact, they are stronger than other banks in Florida and other banks around the country. And our capital ratios have actually grown and shown some improvement over the past 12 months. In fact, our capital ratios today are stronger than they were in early 2007.

Our growth rates in the near-term in terms of balance sheet growth are expected to remain somewhat subdued, given the environment, so we see no pressure on capital coming from growth or coming from negative earnings. So while we don't see our dividend increasing in the near-term, we don't presently have any plans to reduce it.

Thank you.

Christopher Marinac from FIG Partners.

Hey, Denny, good morning. Could you talk about the demand function of what you're seeing in commercial real estate, both in your part of the state as well -- in the (inaudible) Coast as well as elsewhere?

Demand -- are you referring to residential demand?

Yes, but also commercial as well.

Oh, okay. You know, we still have pipelines and we are still open for business and still doing loans. I would say on the residential side, you hear of some anecdotal discussion of buyers beginning to move back in and bottom-fish. We've seen some nice price reductions occur on the residential side over the last quarter or two. But it's certainly too soon to call that an improvement at this point.

Russ, any comments on commercial demand? Kind of what you see?

The commercial demand obviously has slowed because of the markets we operate in, and we still do have a respectable pipeline, as Bill pointed out. We do have -- have staffed up some of our lending team, so our pipeline in Broward and Orlando represent two-thirds of our current commercial pipeline.

So things are certainly a little bit sluggish on the commercial side. I would also say that we are remaining very, very cautious. There are certain parts of the commercial market that we think will feel the effects of spillover in the residential area -- for example, retail. And we are very cautious about certain aspects of the commercial market.

And as you have gone through this process of going though the portfolio the last few quarters, how do your appraisals stand in terms of their timeframe when they were last updated?

Generally speaking, with any of the problem credits that we've been dealing with, the appraisals that we are relying on have been done in the last 30 to 60 days, generally speaking. And we don't just rely on that independent appraisal; we also have a team of folks internal to our Company who are challenging all of the assumptions used in those independent appraisals and, if need be, making further adjustments on our own --

Downward.

Downward. So we feel as of right now we understand where current values are, and we are working hard to make sure that those values -- the reality of those values are reflected in the numbers that we've presented.

Great. And the last question just has to do with interest reserves. How prevalent is that in your construction portfolio, and is that at all any precursor to future issues?

We have very little of that left --

Okay.

Most of the early growth in nonperformers -- or some of it -- had to do with us not funding any of that. So we did very little of that generally over time, really probably more so as a function of the size of the loans we are doing; we are not doing gigantic loans here. And we were looking to guarantor strength over the last year to handle a lot of the carry charges, and a lot of that guarantor strength has weakened over the last year. So I would say very little of that.

Okay, very well. Thanks very much.

[Andrew Lasick] from [Beaufish Trading].

Yes, hi. I've got a question. On your current nonaccruals of the $67 million, what is the actual amount of reserves that you are holding against those?

Well, I think in our release, we talked about impaired loans and we have a portion of an impairment reserve included in that --. The reserve is a general reserve on the whole portfolio.

Okay.

Generally speaking, on a nonaccrual loan, if there has been a confirmed loss, we would write that nonaccrual loan down. And I mentioned in my earlier comments part of the -- substantially all of the loan loss we took this quarter had to do with writing down some of those loans.

On your portfolios that you have, obviously your residential, your commercial and your construction and development, the problem seems to be coming from the construction and development, as we've seen in our local economic markets and across the nation, it obviously has been a major issue. How comfortable are you with your current portfolio of the additional -- of the $299 million going forward? Have you seen any loans in the last 23 days since the end of your quarter -- is it a similar percentage moving into nonaccruals? I mean are you comfortable with that portfolio going forward or are you still very wary of what you are seeing?

Well, I guess all I can say is that we have looked very carefully at that entire portfolio. The reason we disclosed that number -- it was something we talked about the last couple of quarters -- kind of trying to scope the size of the residential construction and land development portfolio -- that is what we have been monitoring very, very carefully for over a year now. And that monitoring has been occurring on a daily, weekly, monthly basis for all of those credits. And all I can tell you is we've done what we think is a pretty conservative job at looking at the condition of each and every one of those credits and, where appropriate, they've been marked nonaccruals.

Right. Have you been able to -- let me ask you this. On any of your foreclosures and actual liquidations that you've had to do or have done in that portfolio, would you say that what you guys have been -- what your appraisal values and what you've been getting in the marketplace have been congruent?

Yes, I would say so. Again, all I can say is we have been very careful, number one, to make certain that we have the most currently available data that would be used to evaluate the carrying value of any of those assets. And number two, we obtain that from qualified independent sources. And number two, we have our own team of people who are highly qualified reviewing that information and either confirming that they agree with the value or, in some cases, creating more conservative estimates. So, we've done the best job we can. We believe that the values that we hold today are supported by market transactions.

Right. But what I'm asking is has any current market transaction shown that those numbers have been --?

Well, I will say we've received a handful of payouts and paydowns on credits that were consistent with our carrying value. This past quarter, we had, I believe, a $4.5 million credit refinance payoff, and that was about where we thought -- we felt comfortable with the value. And I guess there was another party that agreed with us.

Denny, it might be helpful to say that we -- at this point, we have not taken any A&D loans all the way through the foreclosure process. The only actual foreclosures we have (inaudible) of cats and dogs of residential loans. At this point, even though we have some in foreclosure, we can't answer his question because we haven't brought one all the way through. But what we have seen is (inaudible). The ones that have paid off have been paid off -- supported what we thought the value of the ones that we liquidated were.

I hope that helps.

Yes, you did answer my question. Thank you. You guys have a great franchise and best of luck. Thanks.

Wilson Jaeggli from Southwell Partners.

Thank you. Good morning. Could you tell us what OREO is here in the quarter?

735,000.

I'm sorry -- you broke up. What did you say?

$735,000.

735,000. Could you help us here? When you have a confirmed loss -- I know you just mentioned that very few things have gone through the process here, and no A&D loans have, but some residential construction loans have, where they've either gone into OREO or foreclosure, and basically where you have a confirmed loss -- could you give us an idea what percent that confirmed loss or the eventual valuation is -- what percent that is of the original loan? Give us a feel, in other words, for what are you having -- when you actually -- you know question. When you basically go through the process here. what kind of write-downs do you have to take on your original loan?

Let me just tell you this, with regard to raw land and sort of improved vacant property and that sort of thing, which is where we are seeing the most significant valuation adjustment. It is pretty darned clear that there has been -- it varies widely from project to project and loan to loan, but it's not hard to imagine there has been a good 40 to 40 plus percent decline in value, maybe 50% decline in value, from maybe a level that we saw two or three years ago.

We never bought into some of the superinflated values we saw over the last two years. But what we felt was maybe a supportable value two years ago that we would have agreed with and underwritten to, we've seen a pretty solid 40% to 50% decline in value on the residential side. Where you are looking at improved properties and the like, again, it can be very, very dramatically different for us from house to house, but there has been kind of a very clear 15 plus percent decline in average home prices, I would say, in most of the markets we're in. So the losses that we've taken or the write-downs we've created and the provisioning we've taken reflect those kinds of broad-based numbers. Very dangerous for me to give you that number because it does vary significantly project --. We have other where we've seen very little decline.

I understand. In the land loans in here, are there personal guarantees on most of those loans?

Yes, on virtually -- in fact, I would say on every single case, there are personal guarantees, and every one of them -- I will tell you one of our larger nonperforming loans has been reduced by personal guarantees. I think our holding values reduced around -- what -- on that one -- about $3 million or so? $2.5 million, $3 million in the last two quarters. So I mean we are actively pursuing those guarantees and we tend to not book those unless we collect them.

You gave us an idea for raw land and residential here. You mentioned you had one condo project that was approximately 11% of NPAs. What kind of percent decline have you seen there? Is that along the same lines here of 40% or so, or --?

There is no loss in that. (Inaudible), there's no loss identified.

Okay. And that is great. And when you have no loss like that, is that simply because of your original loan to value was quite low or --? If you've seen a decline in properties, why is there no loss in that kind of loan?

Because it was --

The equity upfront.

-- the equity upfront and the project and the loan to value and the underwriting originally. And in that particular case, I believe there were deposits placed on the loan that further reduced our exposure, as those folks walked away from those deposits.

I see. So you basically did a quality underwriting job, right?

Well, we like to think so, but we're not at all happy that it is on nonaccrual, I can tell you that.

I'm sure you are not. What is the average loan size for construction loans?

We don't have that information and haven't published it. It's going to vary from -- the ones I'm sure you are more concerned about would be project finance and that sort of thing. And our loan size is going to average in the $3 million to $7 million, probably something like that.

Okay, 3 to 7. Your 30 to 89 days past due, what is that number, please?

We will be filing that with our -- the Call Report and the like. It's not a number we've got out there. But I can tell you there is no substantial change from last quarter.

Okay, that is great. Thank you very much.

[Charles Beauregard] from (inaudible) Capital.

Hi, I was just wondering a little bit about the other side of the balance sheet. Namely the decline in demand deposits that you've had, could you talk a little bit about that? And is that an area in which your consultants are providing you advice, and what the advice might be?

Well, we have been talking about that for over a year. What we have seen is not a decline in business or a decline in customers, but we've seen a very clear-cut decline in average balances, particularly in our demand deposit area, over the last 18 months or so. Particularly intensive declines that occurred early in 2007. And as you dig down and look at it, you find it entirely related to the declining real estate markets in Florida. We have a lot of relationships with escrow agents and title companies and attorney trust accounts and the like, and those really drove down average balances in the context of the last year plus.

That seems to be stabilizing. I think we've talked about it stabilizing in the last quarter or two. And the work that we mentioned with our consultants I think have to do with the fact that we have a remarkable consumer deposit franchise in our footprint. Today, we have more branch locations in our core legacy markets than Wachovia and SunTrust and all the very large players in those markets. We have a remarkable footprint, we have a remarkable franchise within the footprint. And we think looking ahead over the next couple of years, it's important to bring increased focus to the further development and growth of that existing franchise. And so we have worked with some folks, really over the last six months or so, to bring greater focus on activities we need to undertake to continue to support and grow our retail franchise. And we do that because we think we are going to -- it's going to be a more difficult environment on the commercial side of things here over the next couple of years.

Thank you very much.

Gary Tenner from SunTrust Robinson.

Good morning. Just a couple questions, the first related to that condo credit that you said is 100% completed. I think you said you have initiated the foreclosure process on it. What is your I guess bias on that type of credit in terms of holding it for some period of time and selling the units and getting made whole versus selling it for some sort of discount and clearing it off the books? How do you view that, and what type of secondary market is there right now for that product?

You want to answer that, Russ?

On that particular project and any project like that, we would seek to sell the loan or the asset in whole to a bulk purchaser. We would not be contemplating holding any real estate or selling out retail.

Do you have a sense from folks that you've talked to what sort of discount the secondary market is looking for on a finished condo project in your market?

We value it on a bulk sale basis. We take the most conservative approach to do the valuation, which is the bulk sale. And so we believe that we considered the fact that it would be a bulk sale and there would be a discount in our valuation.

Right. But in answer to your question, there is a lot of liquidity out there, and the pricing is all over the board. I can tell you we've sold a handful of loans over the last couple of quarters and those have been sold generally at par, you know. But we've had all kind of offers that were substantially lower than that as well. So it's kind of a Wild West out there in terms of offers for loans right now.

Okay, great.

The key is for us to take a realistic view of the valuation of that collateral, those kinds of pieces of collateral, and make sure that we have it booked at a number that we feel is very supportable.

Great. And I think I missed this at the outset. Denny, I think you had sort of given, I guess, the top three components of NPLs.

Yes.

I caught the last two, which was the condo and the 6.5% individual --

Yes, the first one, I think I said about 50% of it was either land or residential developed land, which is about 50%. About 30% is in true commercial real estate type credit, that would be -- or commercial land -- non-residential, in other words. And I mentioned that, oddly enough, the bulk of that 30% are actually related to borrowers. Although it may be a commercial piece of property, they are borrowers who are themselves unfortunately entangled in large residential exposures that we may not have on our book.

Okay. Great. Thanks.

So they are experiencing stress on that side of their business and are unable to perform satisfactorily, even on a commercial piece.

Okay, right. And just one last questioned regarding the public funds deposits. We've seen that from a couple banks in Florida this quarter. As you pointed out, there are some issues with the state pools. Can you quantify what the addition was in public funds in the quarter? If I missed that, I apologize.

I don't think we had that number that we gave.

It is approximately -- if you recall, Gary, we get pretty good seasonal deposits from our municipalities. And just the state pool's probably in the range of 30 million to 50 million additional came in.

So the growth on deposits was seasonal impacts from some of our institutional clients. As Bill said, we also had this double whammy with the state pool, people expressing concern over that, and justifiably so. But the other issue is just general seasonal growth in all deposit categories.

Great. Thanks for the color.

Tom Wasserman from Wasserman & Associates.

Hello. This is kind of a naive question; I'm not an analyst. But does your goodwill asset have any participation in the strong capital ratios you referred to? And also, when I think about the capital-to-total-assets ratio, how does that compare in your mind's eye to other banks and -- for instance, to what a regulator might think of as a strong ratio in that particular one?

Well, the ratios I was referring to really would have been our Tier 1 to total assets or adjusted assets ratio. I think we indicated that is far in excess of 10%. Our total risk-based ratio -- these are two very critical ratios to regulators -- are at we think around approximately 12%. The minimum to be "well capitalized" for a regulator on total risk-based is 10%; we're at 12% roughly. The minimum for banking regulators on Tier 1 is 6% and we're at 10%. So I mean we are significantly away from those minimum numbers.

And part of the reason we had some improvement in capital ratios involved some trust preferreds that we took down at midyear in '07. So you add all that together, those are all included in the numerator of the regulatory ratios. And all of those regulatory ratios haircut out goodwill.

Thank you very much, and (multiple speakers).

Our total equity to assets, which would include -- would not be haircutted with goodwill -- is I believe around 9.5%, something like that. Might be a number you might be familiar with.

Okay. Thanks a lot for that explanation, and I was pleased to hear your comments on your dividend.

Thank you.

David Bishop from Stifel Nicolaus.

Good morning, Denny. How are you doing? I came in late, so I apologize if you've covered this already. But given the pretty significant easing by the Fed here over the past couple of weeks year, have you seen any response from some of your in-market competitors there who have, quite frankly, been pretty aggressive in terms of posting some relatively high CD specials out there in the market? Have you seen them back off at all as of late over the past week or two?

It is probably a little early. Bill can comment in a second. I will point out that it looks like we won't have to worry about Countrywide, hopefully, which has actually been advertising nationwide. And they have an office -- I think one office in one of our markets. So we definitely have seen some improvement. Bill, any sort of general color on that?

Yes, before the Fed eased, we saw some easing from some of the competitors. As Denny mentioned, Countrywide was at 5.65 and they were --

This would be like a CD rate?

Yes, 5.65 for seven months, I think it was. They were advertising 5% -- this is pre-Fed rate cut. Whether they were anticipating that or not or whether it was the acquisition or whatever. BankUnited had backed down their rates as well. They were at 5.25. National City was advertising at 5.25 for four years. So as Denny mentioned, it's really too early. We haven't seen any reaction yet from that. We are hopeful that not only the CD rates, but we will see some change in the money market rate offerings as well, because they have been quite high. They were teaser rates -- 30 and 90 -- or 90 and 180 days in the 5% range.

I would point out some of the problems that have been experienced in money market funds -- not bank deposits, but funds -- you are really starting to see those rates get affected too. So I can tell you we are going to have to work hard to push those rates down, because that needs to happen.

And then in terms of credit here, obviously on our end there's been -- you worry about spillover effect to the commercial consumer side there. I guess as you scour the books there, what are you seeing in terms of early-stage delinquencies, maybe more pure commercial, non-real estate related type credits, and then on the consumer side -- home equity, etc.?

Well, on the commercial side, Russ, we've not seen any deterioration that is measurable or has given us concern. We have a very disciplined process around reviewing all of our exposures on the commercial side. And we have a very disciplined process around responding to evidence of deterioration in terms of our loan grading system, and that triggers all kinds of further review and so forth. So I feel pretty confident that we have not seen any deterioration there.

I will tell you anecdotally we have noticed higher levels of vacancy in some of the retail centers. They tend to be the fringe-type centers and the like. But no impact on anything that we have. I mean, the good news is a lot of the -- the good news is the commercial portfolios, not just for us, but for most banks, have a very wide variety of vintages associated with it. Those were originated over a fairly long period of time, tend to be. And so you just don't see a concentration around any kind of valuation problem or anything like that, like you might have seen in the residential exposures that banks have.

So we are not anticipating anything at this point. We have expressed internally extreme caution in certain aspects of the commercial development. In fact, we have now internally there are very few parts of that market that we are being at all promoting, in terms of growth; we are very cautious.

Thank you.

I'm sorry -- Jean, Doug, did you have anything you would like to add?

(Inaudible question - microphone inaccessible).

Yes, we've looked -- we have a very small home equity portfolio. It tends to be amortizing loans more so than lines. And we've looked at that over the last quarter and haven't had any widespread issues there that have risen to give us any concern.

We've seen some evidence of slower payments on some of our consumer portfolios, but they are very, very small, and have not risen to any concerning level or anything like that. And it really is just a function of kind of what is happening in the residential market in terms of employment and the like. But no major -- as you've seen, no major concerns at all. And our performance and statistics continue to be significantly outperforming the national and regional numbers. Hope that answers it.

Yes, I appreciate the color.

Al Savastano from Fox-Pitt, Kelton.

Good morning, guys. How are you? Just a question on the reserving methodology. You boosted reserves quite a bit in the third quarter. And just kind of going forward, the reserves-to-loans ratio, could we expect that to increase if problem credits rise? Or as the reserve you set up, will that bleed down?

Well, all I can tell you is that we have a -- we have a basket of loans that we have been concerned about for a year. And as that basket of loans has matured over the past year and been affected by what is going on in the marketplace, we have tried to reflect that deterioration in the reserve-building we've done over the past year. And the good news is we haven't seen the size of the basket grow. It's actually come down a little bit. And what has happened is loans inside that basket have just continued to migrate in terms of our concern. And we are at a point where we will just continue to watch that very, very carefully, and if we need to build, we will. But we don't presently see that. So we'll just have to see how conditions evolve over the next 12 months and see what happens.

Let me make sure I understand completely. Basically, what you are saying is if you have problems pop up outside of what you already know, that basket you were talking about, then reserves will likely have to go higher.

I'd suppose that is a fair statement. And again, just to be clear, we have not noticed any growth in -- we've basically got everything we can imagine in that basket, I guess is all I got to tell you. We've really been pretty complete, I think, in the work we've been working on, not just in the last quarter, but in the context of the last 12 plus months.

Okay, thank you.

I think it's fair to point out that market conditions continue to play a role in what happens with those credits and, in fact, others. So if we continue to see deterioration in the market, we will reflect (inaudible) in the financials appropriately.

Right.

There are no further questions.

Okay. Well, thank you very much for your attendance today. You know Seacoast today continues to trade, I think, at a remarkable level relative to the core franchise value of our Company. And we will continue to grow that core franchise out over the next year and look forward to our next call. Thank you.

(Inaudible) today's teleconference. You may all disconnect at this time. Thank you for participating.