Seacoast Banking Corporation of Florida (SBCF) 2011 Q1 法說會逐字稿

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  • Operator

  • Welcome to the first-quarter earnings conference call. My name is Sandra and I will be your operator for today's call. At this time all participants are in a 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.

  • Dennis Hudson - Chairman, CEO

  • Thank you very much. Again, welcome to our first-quarter conference call. Before we begin I would like to direct your attention to the statement contained at the end of our press release regarding forward statements. During the call we are going to be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act. And accordingly our comments are intended to be cover within the meaning of Section 27A of that Act.

  • With me here today is Jean Strickland, our President and COO; Russ Holland, our Chief Lending Officer; and Bill Hahl, our Chief Financial Officer.

  • As you may recall, on last quarter's call I said our success in managing down credit risk would began to support our return to profitability. Well, I am pleased this quarter to report our first quarterly operating profit since 2008, as credit and credit-related costs continue to come down and our revenue initiatives continued to produce great results.

  • I want to spend some time later in the call discussing our revenue build, because growing our customer base is what we are currently spending most of our time on these days. But first I want to give you a credit update.

  • The significant improvement in earnings this quarter reflects the completion last year of our focused strategy to eliminate our exposure to our riskiest loan types, following the real estate valuation decline that occurred in our market. This, combined with slowing inflows of new problems and a more stable outlook, gives us increased confidence this quarter that these recent trends are very real.

  • Nonperforming loans have declined for six consecutive quarters and are down by 21.7% over the same time last year. We now expect significant progress in reducing these numbers even further over the next two quarters, as collateral that secures approximately 50% of our non-accrual loan balances at quarter-end is now under contract for sale as part of final settlement agreements negotiated late in the first quarter. These agreements involve a number of loan relationships and include our largest remaining problem credits.

  • We expect to see improved credit quality throughout 2011 based on our present outlook, with accelerating improvement likely, should our recent settlements close as planned. Having completed our plan to reduce credit risk, we expect our credit-related costs for 2011 will remain much improved when compared with last year.

  • Now, back to revenue and growing our customer franchise. For some time now we have been executing a business plan that is designed to produce strong organic growth in customers and increase shareholder value. It is a plan that features a low-risk posture and is intended to increase profitability and position us as a top-tier performer.

  • At the center of our plan is a strong, core customer market-share performance objective which are supported by a value proposition that resonates with customers, particularly in light of the changes that have occurred in the banking landscape and have altered the competitive environment. We have been executing sales and marketing tactics that support our plan and have been reporting strong improvements for some time now in attracting new customer households to Seacoast.

  • Our execution performance this quarter was frankly stellar, with much stronger growth in noninterest-bearing checking balances than we expected, which Bill is going to speak to in a minute. Households grew again this quarter, as new households added were up 28% over the same period one year earlier.

  • Overall core deposits were up 12% over the prior year and up 14% on an annualized linked-quarter basis. The mix of noninterest-bearing deposits was 19% of total deposits, up from 15.8% one year ago.

  • Now I am going to turn the call over to Bill, who will give us some more detail on the results for the quarter. Bill?

  • Bill Hahl - EVP, CFO

  • Thanks, Denny, and good morning, everybody. As in prior quarters we have posted some slides on our website that I will refer to during my comments. As you just heard, we posted an overall operating profit for the quarter. Including the impact of the preferred stock dividend and accretion, the loss attributable to common shareholders was $0.01 per share.

  • Improved results were largely due to lower provision and noninterest expenses and a stable net interest margin. Overall, the improvement in our results is occurring coincident with the lower risk in the loan portfolio, and some of the positive trends related to deposit and household growth where we have been driving the improvement.

  • Notable and visible examples of our success include deposit mix and pricing, expense management, and the impact of asset liability management actions on the net interest margin.

  • So with that brief summary of the first-quarter results, I will now shift to a review of deposits on slide 8. Year-over-year deposits declined by approximately $73 million, with $82 million decline in higher-rate single-service time certificates, which were allowed to decline and were replaced with lower-cost new core deposit accounts.

  • Noninterest-bearing demand deposits increased $46.6 million or 16.8% year-over-year, and the mix in deposits improved with noninterest-bearing deposits increasing to 19.3% of total deposits, up from 15.8% a year ago, while time certificates declined to 32% from 35% of deposits a year earlier. So the overall reduction in deposit balances year-over-year has been positive to the margin and was driven by CD balances.

  • Our current strong liquidity position has enabled us to take the actions I just mentioned to refine and lower the cost of our funding profile. We also took actions with our securities portfolio, primarily increasing the available-for-sale portfolio. The portfolio continues to be concentrated in higher quality and very liquid assets.

  • Governments and agency securities are the bulk of the portfolio. During the quarter we increased our holdings of agency mortgage-backed securities. The overall portfolio grew over the past 12 months due to the strong inflow of core deposits and declining loan demand.

  • Given what appears to be an improving economy with a higher probability that we are moving closer to an increasing rate environment, we have been careful and have purchased all shorter effective duration structures which maintained the entire portfolio at approximately a 3.0 [move] duration. Our continued success in liquidating nonperforming assets will also provide a need for future investments.

  • I will now take a moment to talk about the margin on slide 9. The net interest margin expanded slightly, increasing by 6 basis points to 3.48% compared to a year earlier and was unchanged from the sequential quarter. Deposit volume, mix, and pricing combined with increases in the investment portfolio more than offset the negative impacts of a decline in the accruing loans.

  • As we look out into the second quarter and beyond, we expect a stable to moderate margin expansion in the near term, at least until loan growth returns. In fact, some key variables such as loan and deposit volumes, pricing, and market interest rates suggest margin could improve more robustly in the latter half of the year.

  • Moving to slide 5 and provision expense, total provision for credit losses for the quarter was $640,000, down $3.3 million from the fourth quarter. Net charge-offs of $4 million in the quarter are approximately $600,000 lower compared to the fourth quarter level. This is the third quarter in a row of a decline in net charge-offs.

  • Despite the notable improvement in asset quality and the significant expected improvement in the next two quarters, the allowance remains relatively strong for the time being, as the outlook for economic improvement and home values remained uncertain.

  • Now, moving on to noninterest income on slide 10, noninterest income excluding security gains in the quarter was down 20% compared to last quarter, but was up 1% compared to last year. After adjustments for the sale of merchant banking business in the fourth quarter, noninterest income declined by only 8% sequentially as a result of retaining residential and marine loan production on the books instead of earning fees from sales.

  • Sequential revenue increases were reported in wealth management and in interchange fees on deposit accounts. The decline in service charge revenue was driven primarily by fewer days in the first quarter when compared to the fourth quarter.

  • Now, turning to slide 7 for the review of expenses. Noninterest expense declined 14% when compared to the first quarter of 2010, primarily as a result of lower OREO expenses. On this slide, as in prior quarters, we have adjusted for some items that are detailed on this slide that are not related to core operations.

  • On this basis, expenses have declined by 1.5% compared to the first quarter of '10 and are nearly unchanged from the sequential quarter. So the highlights of what I have discussed this morning are, one, our earnings improved significantly. Two, the provision expense declined due to improved asset quality.

  • Three, the margin remained relatively stable, driven by continued shift in our funding mix to lower-cost deposits and some additional investments. Four, the noninterest income improved versus last year's first quarter in part due to the net household growth. Finally, noninterest expenses have declined, as cyclically sensitive expenses are lower and we have managed all other expenses tightly.

  • We are encouraged by the continued improvement in our credit metrics. The remaining questions are related to how quickly and strongly the economy recovers and where home values will trend from here. At this time we are looking forward to continued improvement in our results as 2011 progresses.

  • With that, I will turn the call back to Denny.

  • Dennis Hudson - Chairman, CEO

  • Thanks, Bill. I thought I would close with a few comments on our deferred tax asset, the DTA. The support for our decision, which occurred some time back, to place a reserve on our deferred tax asset was largely the uncertainty with respect to emerging credit costs and the impact this was to have on our profitability. As our credit risk improves and as nonaccruing loans decline, our visibility with respect to future profitability begins to improve and we can place increased reliance on our forecast.

  • Further supporting our forecast of future earnings is our success in growing our customer base and the resulting improvements in revenues and the impact on bottom-line performance. So, we believe that decision to recapture deferred tax assets requires a supportable forecast of future taxable earnings and the elimination of the basis for which the reserve was created in the first place, which we feel is beginning to be supported by our improving credit risk profile.

  • Realization of this asset could increase common shareholders' equity by up to $48 million. We are not certain of the timing, but we look forward to discussing with you our results over the balance of this year and hopefully get to a point where we can begin to realize the asset.

  • Finally, I want to conclude by thanking all of our 500 Seacoast Associates for the results that they have produced this quarter and for the hard work and the often difficult work that each of them have undertaken to help get us here. Your commitment to each other and to our customers has been outstanding and is deeply appreciated.

  • At this point I would like to open the call for questions, and we will turn the call back to the operator.

  • Operator

  • (Operator Instructions) Joseph Fenech, Sandler O'Neill.

  • Joe Fenech - Analyst

  • Good morning, guys. Denny, the main question I have for you is I guess with respect to capital. If I look at your capital position it seems as though we are coming to the point where that TCE ratio bottoms out, if we are not there already. But you do still have TARP; the TCE is still at the lower end of your peer group. On the other hand, as you just talked about, the DTA is going to help you at some point -- and pretty substantially.

  • How do you see the capital situation playing out? Are you content to sort of wait it out, knowing that that benefit as there down the road even if the timing is a bit uncertain?

  • Or would you consider raising a bit more capital here just to solidify yourself a little bit more in anticipation of that?

  • Dennis Hudson - Chairman, CEO

  • Well, you know, you are right about the TCE, and I understand what you're saying. You look at our regulatory ratios, however, and they are extremely full and solid.

  • We are moving into a future of capital accretion. And I think it would be sensible probably for us to delay any decision on the whole repayment issue until we get a little further down the road. We don't have any present plans to pursue that in the near term.

  • That's in part and largely due to the fact that we see much improved performance coming over the next year. Again once we get back to accreting capital, you see that TCE ratio start to improve pretty meaningfully.

  • So the press for us is to improve our earnings over the next 12 months in -- or improve our ability to earn over the next 12 months and improve our actual earnings over the next 12 months. And that is where we are headed; that is what we are looking at; and that is what is going to be good for shareholders.

  • Joe Fenech - Analyst

  • Fair enough. Then a different topic, Denny. What is the likelihood do you think that these settlements you talked about close as planned? Just trying to get a sense as to whether you think this is as close to a 100% done deal as you can get, without it actually happening; or if there are certain things that still need to have to happen in order to get those sales closed?

  • Dennis Hudson - Chairman, CEO

  • Right, well before I answer that question just one other comment on looking forward with the DTA. You mentioned you thought maybe our TCE ratio had bottomed or was bottoming, and we would share that view as we look forward. So we see some nice accretion out over the next year as we get into a stronger position with better core earnings out, particularly in the second half of the year.

  • To answer your question on the transactions, there are no contingencies in the transactions. So we feel pretty confident about them. But like any transaction anywhere, anything can happen.

  • So we are cautious, but it is a significant enough issue, a significant enough series of transactions that we felt the need to disclose it. So, I guess that is all I have to say on that. Russ, do you have any other -- do you agree?

  • Russ Holland - EVP, Chief Banking Officer

  • Yes.

  • Joe Fenech - Analyst

  • Okay, then lastly, Denny, your best guess at this point. I know it is tough to say, but when we see the loan balances level off a bit, or the new stuff you are putting on can offset the payoffs and the workouts of the remaining problems that you have -- your best guess, is that a 2011 event?

  • Dennis Hudson - Chairman, CEO

  • Well, setting aside the potential significant payoffs coming of nonaccrual loans, we are already there in terms of seeing some stabilization. Russ, I think in the last month we actually saw loan growth, right?

  • Russ Holland - EVP, Chief Banking Officer

  • Yes, we are seeing loan growth in C&I and owner-occupied real estate, and we have a strong pipeline in that area. And we see continued improvement in credit quality.

  • Dennis Hudson - Chairman, CEO

  • I think I said back in July of last year that we had finalized all of our workout issues and moved some of our softer workouts back into our special assets area. So late last year we really began to get back out in the market and do a much more aggressive job.

  • Not that we had left the market, but it got much more focused on the business side and commercial side. And we are now seeing those pipelines develop very nicely. I think we will have some good stuff to talk about over the next couple of quarters.

  • Joe Fenech - Analyst

  • Okay, and then, Denny, just real quickly --

  • Dennis Hudson - Chairman, CEO

  • Just to be clear, we think the declining loan balances have pretty well come to an end -- except for the fact that we have got these problem loans that are going to liquidate at some point, and that will be a drag on growth. But that is a big turnaround.

  • Joe Fenech - Analyst

  • Okay. Then the increase in accruing restructured loans this quarter, can you talk a little bit about that?

  • Jean Strickland - Senior EVP, Bank President & COO

  • Sure.

  • Dennis Hudson - Chairman, CEO

  • Yes, go ahead, Jean.

  • Jean Strickland - Senior EVP, Bank President & COO

  • There are some continued high unemployment in our markets. We you work with our customers. We also have some commercial accounts that we have had very good success restructuring without any redefaults.

  • Our redefaults on the residential side are half of what the industry average is. We've reported before and we continue to experience about a 20% redefault rate on the residential side versus an industry standard of 40%.

  • So we believe we do a superior job both identifying, declaring, and working through the issues and restructuring loans with borrowers for their success in being able to repay us. It is a collection strategy that will produce better results for us.

  • Dennis Hudson - Chairman, CEO

  • I think that is the key, Joe. We have a high level of troubled debt restructures relative to peers and others, but we think it was an appropriate strategy to pursue. We have been very proactive in reaching out, particularly to some of our commercial borrowers. About two-thirds of the TDRs are commercial and about one-third are residential.

  • The commercial proactive stance that we have taken has been very effective we think in improving our risk profile as we have gone forward. So it is working well. We said before it happened that this is what we were going to do. We said that about 18 months ago, and it has worked very well. Most of those loans are CRE loans, on the commercial side of TDR.

  • Joe Fenech - Analyst

  • Okay. Thanks very much, Denny.

  • Operator

  • Christopher Marinac, FIG Partners.

  • Christopher Marinac - Analyst

  • Thanks, good morning, Denny and others. I wanted to ask about the pending loan sales that you mentioned in the press release. What happens mechanically in the income statement when those occur? Is there any additional chargeoffs or net loss on OREO that occurs when that is finalized?

  • Dennis Hudson - Chairman, CEO

  • No, we fully recognize that, those costs, in the third quarter.

  • Christopher Marinac - Analyst

  • Okay. So the residual impact is nil (multiple speakers)?

  • Dennis Hudson - Chairman, CEO

  • It will be a debit to cash and a credit to loans.

  • Christopher Marinac - Analyst

  • Got it. Okay. Then is there any stabilization or maybe trend that you can talk about, about the charge-off level? Would this be a good quarter to look at it as a guidepost? Or would you have some volatility in charge-offs still?

  • Dennis Hudson - Chairman, CEO

  • It is certainly possible we could have some volatility in charge-offs. We think the overall trend is down.

  • I guess the wild card would be any new problem credits deteriorating. The known issues, known problems, we feel pretty confident about that; but that is always a possibility in this kind of tough environment we still are in today.

  • So we think relative to a year ago and two years ago, nothing like that is ahead of us, because we have eliminated the risk. It is gone. Construction book is completely liquidated.

  • What we have left is well contained and well understood and well reserved for. So it would just be the handful of deteriorations we might see over the next year.

  • We don't see it at the moment, otherwise we would have said something about it. But -- so that is a possibility; we could see some volatility there. But nothing like we saw the last two years.

  • Much more contained and small. But we think the overall trend should continue to improve.

  • Christopher Marinac - Analyst

  • Great. I guess as a follow-up on the new loan growth that you mentioned, and Russ had mentioned as well, on C&I particularly. How are those priced relative to competition?

  • Also, how do you think about new loans in terms of reserves? It [is] in isolation, of course, for any new loan growth.

  • Russ Holland - EVP, Chief Banking Officer

  • Well, the pricing is -- we try to get as much as we possibly can I think in relation to the competition. But I think we are competitively priced. It is a price-sensitive market right now, so we are working as hard as we can to get the pricing up and the fees.

  • But what we are really focused on is the full relationship with the customer, the full deposit relationship and other any other ancillary business we can get -- their mortgage, car loan, any opportunity we may have.

  • Dennis Hudson - Chairman, CEO

  • We are targeting our business lending in specific segments that are -- have a better outlook today. Those segments would come as no surprise to you, are being targeted by other banks. So the competition is there in those segments of the market that are performing well and likely to continue to perform well.

  • So, it is a challenge; but we are making some progress. We think we have a value proposition that really helps us make that argument. We are really the only convenience local bank left in most of our markets given what happened here.

  • Jean Strickland - Senior EVP, Bank President & COO

  • Your question on the allowance for the new loans, that amount that is reserved on the new loans has been formed by our history of loss, as well as subjective factors. And we appropriately reserve new loans coming on.

  • Christopher Marinac - Analyst

  • Great. Thank you, guys. I will yield the floor.

  • Operator

  • Jefferson Harralson, KBW.

  • Jefferson Harralson - Analyst

  • Thanks. Good morning, guys. I was going to ask you on the -- I think you mentioned a change in how you are thinking about the marine finance loans. It sounds like you're going to be keeping more on the balance sheet.

  • Is that -- I guess can you talk about was there a change in the gain on the sales of them? Could you have gotten less for them if you had sold them? Or is it just an asset that you want to keep on the book to help grow the balance sheet?

  • Dennis Hudson - Chairman, CEO

  • Yes, good question. No change in our outlook for marine, and we are not going to add marine loans into the portfolio. We just had a couple loans that we added this quarter, I think, that were mentioned. But it really was kind of insignificant. No change there.

  • Jefferson Harralson - Analyst

  • Okay, so do you expect to continue to make them and sell them?

  • Dennis Hudson - Chairman, CEO

  • We have always retained a small portion of those loans that are locally generated. This would be for local borrowers. We just had a couple of loans there that were added to the portfolio.

  • Jefferson Harralson - Analyst

  • All right. Thank you. Just a follow-up on the C&I growth this quarter, which was great to see. Can you talk about the types of companies that you are doing business with that is showing that growth?

  • Russ Holland - EVP, Chief Banking Officer

  • Well, as Denny pointed out, it is very targeted to professionals. Primarily in our market the medical area; but we are seeing across the board an increased pipeline in all of our markets including Orlando, Palm Beach, and the Treasure Coast of professionals -- of loans to professionals and small businesses.

  • Jean Strickland - Senior EVP, Bank President & COO

  • It would be CPAs and attorneys, title companies, and some banks.

  • Russ Holland - EVP, Chief Banking Officer

  • It is heavily weighted towards medical right now.

  • Jefferson Harralson - Analyst

  • All right, guys. Thanks a lot. That's helpful.

  • Operator

  • David Bishop, Stifel Nicolaus.

  • David Bishop - Analyst

  • Yes, good morning, guys. I was wondering; most of my questions have been answered, but I don't know if you have it off the top of your head or have that in front of you -- the level of special mention loans? I know that stuff is maybe starting to disclose in some of the new --?

  • Dennis Hudson - Chairman, CEO

  • You know what? We didn't bring that with us into the press release, but it will be in our Q. We didn't see any substantial change in that.

  • Just things continue to rock along there. No big moves at all, one or the other, from year end.

  • David Bishop - Analyst

  • Great. Then there is a slide in terms of the core operating expense level bumping around that $17.5 million or so. As you look out in terms of the migration towards core profitability, do you see even improvement again over and above that level that we saw in the first quarter, that $17.5 million run rate?

  • Dennis Hudson - Chairman, CEO

  • We think that could happen particularly in the second half of the year as we resolve some of these credits and the overhead associated with that, particularly legal expenses and that sort of thing, really begin to moderate. We see that coming down in the second half.

  • Plus we are working on some internal initiatives to rechallenge our overhead levels and improve efficiencies in different areas that may see some pickup there. On the other hand, we see improved volumes out later this year, particularly in the lending area; and those improved volumes are going to offset the efficiency pickups as we produce more loans.

  • So there will be a more efficient enterprise, but we are really focusing most of our attention on the revenue side of the equation. That is what is out of whack.

  • David Bishop - Analyst

  • Great. Thanks, guys.

  • Operator

  • Mac Hodgson, SunTrust Robinson.

  • Mac Hodgson - Analyst

  • Hey, good morning. Along those same lines, expense-related question. You footnote on that noninterest expense slide that it doesn't include -- or I guess core doesn't include -- or doesn't exclude expenses related to credit admin and default management costs.

  • Dennis Hudson - Chairman, CEO

  • Right.

  • Mac Hodgson - Analyst

  • Do you have any level of expenses that is in that number that is related to those two items?

  • Dennis Hudson - Chairman, CEO

  • Yes, that is a good question. We haven't disclosed that information. That is probably something we will start looking at, though, as we project forward.

  • So we don't really have any. It is a good question. We don't really have anything to say there. Any comments, Bill?

  • Bill Hahl - EVP, CFO

  • Just what you said, that it will probably be a balancing thing. As those costs go down, the cost of producing more loans is going to shift. But I don't think it will be a full costout there. (multiple speakers)

  • Dennis Hudson - Chairman, CEO

  • But I think it will -- we will have some pickup.

  • Bill Hahl - EVP, CFO

  • Yes, we will have some pickup, yes.

  • Dennis Hudson - Chairman, CEO

  • Particularly in the fees, consulting and related fees on that.

  • Mac Hodgson - Analyst

  • Do you have a targeted efficiency ratio?

  • Dennis Hudson - Chairman, CEO

  • Well, if you look back historically, Seacoast operated with a efficiency ratio in the mid-to high 60s. When you look forward at other well-run banks throughout the country that are executing similar strategy as we are, which is very much focused on deposit acquisition and a deposit-focused low-risk focus, you see similar kind of efficiency ratios.

  • So our near-term objective is to get back to that level, which we think we can do. Then longer term I think we will be challenged to bring it down into the low 60s. But shorter term we want to get it back to, as quickly as possible, in the high 60s and then bring it on down.

  • Mac Hodgson - Analyst

  • Okay. Then just to clarify the comments about the pending problem loan payoffs. You said about 50% of nonperformers, so that is around $30 million? Is that how we should think about what is coming off?

  • Dennis Hudson - Chairman, CEO

  • Yes.

  • Mac Hodgson - Analyst

  • Okay. Great. That was it for me. Thank you.

  • Operator

  • (Operator Instructions) Michael Rose, Raymond James.

  • Michael Rose - Analyst

  • Hi, good morning, everyone. Just had a question on the loan yields. They have bumped around a little bit. Just trying to look at what you are booking, new production; and maybe how that has varied based on competition.

  • Then on the other side of the equation, how much more room do you have on the funding side to lower funding costs? Thanks.

  • Dennis Hudson - Chairman, CEO

  • Thanks. Bill, do you want to take that?

  • Bill Hahl - EVP, CFO

  • Well, on the -- what?

  • Russ Holland - EVP, Chief Banking Officer

  • We've been consistent on the yield. I think what you are seeing in the movement is some noise (multiple speakers).

  • Dennis Hudson - Chairman, CEO

  • Reversals and the like, yes.

  • Bill Hahl - EVP, CFO

  • Yes. That is probably a fair way to place that. On the funding side, I think we are probably -- we will see some improvement as we did even this quarter. But it will be principally driven by, as it has been, the mix and the repricing on the CD portfolio, which is about 1.78%.

  • So as we get some maturities of -- basically they were longer-term CDs that are coming around for renewal; we will see some improvement in the funding side as far as the cost.

  • Dennis Hudson - Chairman, CEO

  • Also on the funding side, I think we will see continued growth in some of the lowest cost categories, which actually will now, as we look forward, start producing net revenues. Because it will actually start growing the portfolio, the overall portfolio.

  • I think we have run through -- you are right, Michael. We have run through a lot of low fruit in terms of replacement. Now we will start seeing the overall deposit portfolio grow and be invested into loans and the investment portfolio at spreads, at positive spreads.

  • To your first question on the loan yields, I don't know that we quite answered that. But we think that some of the volatility you have seen starts to diminish as we get through this period where we had a lot of adds and deletes in terms of loans going on and off of nonaccrual and the like. That gets more stable going forward.

  • Operator

  • Kenneth James, Sterne, Agee.

  • Kenneth James - Analyst

  • Hi, good morning. I wonder if you could comment on the pending loan NPA workouts. Was that the driver of the magnitude of the reserve release this quarter? Or will that spill and more next quarter?

  • I guess basically what I am asking is, should we expect the gap up between NCOs and provision to be narrower than it was this quarter going forward, or not?

  • Dennis Hudson - Chairman, CEO

  • Yes, a good portion of that had been previously recognized. Some of it accounted for what happened this quarter.

  • However, the overall risk -- if you look at the allowance analysis that we produced every quarter, the overall risk in the portfolio is really beginning to moderate and reduce. That was probably a bigger driver than the specific transactions because those transactions have been largely reserved or written down or whatever over the past year.

  • But some of it was in there. But I think the bigger issue, to get to your question, the bigger issue is the risk level in the portfolio continues to abate. As that occurs, the pressures on the provision begin to recede a little bit.

  • Kenneth James - Analyst

  • Okay. Then last quarter you made some commentary about taking an enterprisewide review of expenses and possibly having some, I guess, more detailed expense-save assumptions or cost-saving measures for this year. Is there any color on that?

  • Dennis Hudson - Chairman, CEO

  • Not yet. It is something we said we were going to initiate in the first quarter, and we have. We are looking at that.

  • As we continue to have specific information to share, we will share it with you. But it is something we are looking at.

  • The other side of that equation are the growth opportunities in the market with the banks that have failed and, frankly, the success of our business model now, that is really beginning to gain momentum on the other side. So it is a matter of continuing to grow revenues without growing overhead, and pushing overhead down as some of the cost of the problems begin to really quickly moderate over the next year.

  • So we think by the time we get to the end of this year, the whole equation in terms of the overhead ratio looks a lot better.

  • Kenneth James - Analyst

  • Well, great. Thank you.

  • Operator

  • Marc Heilweil, Spectrum Advisory.

  • Marc Heilweil - Analyst

  • Hi, I wonder if you could give us a little commentary; I realize this is politically difficult. But on the current regulatory environment that you are encountering and whether it is creating any plusses or minuses for you.

  • Dennis Hudson - Chairman, CEO

  • Well, I would say specific to the institution we have a very good working relationship with our primary regulators; and, frankly, they have been very helpful to us I would say as we have gone forward through this rather difficult period over the last few years.

  • There is, as you well know, great uncertainty with respect to the Dodd-Frank issues and the like and what impact that is going to have on the industry going forward. We will just have to see how that affects us.

  • Marc Heilweil - Analyst

  • But you have made some comments about the difficult environment and the uncertainty. Are there any specifics that you would single out that are on your mind, that would perhaps impede the comeback that the institution is --?

  • Dennis Hudson - Chairman, CEO

  • Well, on the one hand they are probably too numerous to discuss on this call. But if you want to call me later I would be happy to talk with you a little bit more about it. But suffice it to say that is just part of our business world, and that is what we deal with every day.

  • Marc Heilweil - Analyst

  • I guess -- this is coming from somebody who is not familiar with the low level or the activity in your market area exactly. Is there something in the market area that is of particular concern to you that is going on right now?

  • Dennis Hudson - Chairman, CEO

  • From a regulatory standpoint?

  • Marc Heilweil - Analyst

  • No, no. From a business standpoint.

  • Dennis Hudson - Chairman, CEO

  • Well, you know, the markets are healing and improving. Unemployment remains very high in our markets -- in some of our markets as high as 13% or so. That is down from 15%. Pretty horrific environment from that standpoint.

  • But home prices have stabilized, even though you have seen a decline in home prices, home transactions announced nationally, transactions have actually been fairly strong here late last year.

  • A little bit of a dip in the first quarter in closings. But we see very, very strong pipelines now looking out over the next two quarters. That is what I am hearing from realtors.

  • Housing has been the big question down here, and that appears to be improving. So still very cautious, very concerned. But employment is still higher than it really needs to be long term, but some stability and improvement.

  • House prices are now at a level of affordability that I think begin to create somewhat of a floor under pricing, which is positive for us. Thank you.

  • Marc Heilweil - Analyst

  • Thank you.

  • Operator

  • David Bishop, Stifel Nicolaus.

  • David Bishop - Analyst

  • Yes, Denny, just a quick follow-up as it relates to -- you are seeing some pockets of loan demand there. Are you seeing any sort of revamping or a shift in terms of the competitive landscape out there? Are some of the super-regionals starting to burrow downmarket? Is it getting any frothier or any more competitive out there?

  • Dennis Hudson - Chairman, CEO

  • Oh, it is competitive. I think the main difference is it is Seacoast on the one hand and four or five megabanks on the other hand and nobody in the middle. And that's kind of how -- but Russ, do you have some comments?

  • Russ Holland - EVP, Chief Banking Officer

  • Well, we are starting to see competitors such as TD and PNC get a bit of some legs in the market. The other major competitors are pretty quiet. BofA and Wells are really still not aggressive in our market.

  • David Bishop - Analyst

  • Have you seen much from any calling efforts you have? There's been some entrants via FDIC transactions from some out-of-market banks. Anything from that perspective yet?

  • Russ Holland - EVP, Chief Banking Officer

  • No.

  • David Bishop - Analyst

  • Okay. Thanks, guys.

  • Operator

  • (Operator Instructions) Joe Fenech, Sandler O'Neill.

  • Joe Fenech - Analyst

  • Hi, Denny. Just one quick follow-up. When was your last regulatory exam?

  • Dennis Hudson - Chairman, CEO

  • We just completed a review a couple of -- about a month ago, I guess. Yes.

  • Joe Fenech - Analyst

  • Okay. Any preliminary thoughts in terms of -- I know you can't give details, but --?

  • Dennis Hudson - Chairman, CEO

  • If we had anything we needed to work in we would have done it in March. We -- no change, nothing to really talk about there.

  • It was a positive review. We are making progress. Progress is recognized, and we look forward to the rest of the year.

  • Joe Fenech - Analyst

  • Good. Thank you.

  • Operator

  • At this time there are no further questions.

  • Dennis Hudson - Chairman, CEO

  • Great. Well, thank you very much for attending today and we look forward to reporting our results after the second quarter. Thank you.

  • Operator

  • Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.