10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-K

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2008
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File No. 0-13660

SEACOAST BANKING CORPORATION OF FLORIDA

(Exact Name of Registrant as Specified in Its Charter)

Florida (State or Other Jurisdiction of Incorporation or Organization)	59-2260678 (I.R.S. Employer Identification No.)
815 Colorado Avenue, Stuart, FL (Address of Principal Executive Offices)	34994 (Zip Code)

Registrant’s telephone number, including area code (772) 287-4000

Securities registered pursuant to Section 12(b) of the Act:
None.

Title of Each Class Name of Each Exchange on Which Registered

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.10

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule-405 of the Securities Act.  YES o     NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o     NO þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES þ     NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  YES o     NO þ

The aggregate market value of Seacoast Banking Corporation of Florida Common Stock, par value $0.10 per share, held by non-affiliates, computed by reference to the price at which the stock was last sold on June 30, 2008, as reported on the Nasdaq Global Select Market, was $149,140,317.

The number of shares outstanding of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, as of February 27, 2009, was 19,171,779.

DOCUMENTS INCORPORATED BY REFERENCE

1. Certain portions of the registrant’s 2009 Proxy Statement for the Annual Meeting of Shareholders to be held May 14, 2009 (the “2009 Proxy Statement”) are incorporated by reference into Part III, Items 10 through 14 of this report. Other than those portions of the 2009 Proxy Statement specifically incorporated by reference herein pursuant to Items 10 through 14, no other portions of the 2009 Proxy Statement shall be deemed so incorporated.

2. Certain portions of the registrant’s 2008 Annual Report to Shareholders for the fiscal year ended December 31, 2008 (the “2008 Annual Report”) are incorporated by reference in Part II, Items 6 through 8 of this report. Other than those portions of the 2008 Annual Report specifically incorporated by reference herein pursuant to Items 6 through 8, no other portions of the 2008 Annual Report shall be deemed so incorporated.

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FORM 10-K CROSS-REFERENCE INDEX

		Page of
		Form		Annual
		10-K		Report
Part I
Item 1.	Business		5-20		—
Item 1A.	Risk Factors		20-29
Item 1B.	Unresolved Staff Comments		29
Item 2.	Properties		29-35		—
Item 3.	Legal Proceedings		35		—
Item 4.	Submission of Matters to a Vote of Security Holders		35		—
Part II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		35-37		46
Item 6.	Selected Financial Data		37		8
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		37		9-56
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		37-38		30-31
Item 8.	Financial Statements and Supplementary Data		38		59-92
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		38		—
Item 9A.	Controls and Procedures		38-39		—
Item 9B.	Other Information		39		—
Part III
Item 10.	Directors, Executive Officers and Corporate Governance		39		10-18 & 27-28
Item 11.	Executive Compensation		39		27-28 & 41-42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		39-40		—
Item 13.	Certain Relationships and Related Transactions, and Director Independence		40		—
Item 14.	Principal Accountant Fees and Services		40		28
Part IV
Item 15.	Exhibits and Financial Statement Schedules		40-44

Certain statistical data required by the Securities and Exchange Commission are included on pages 10-56 of Exhibit 13.

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SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements made herein under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and elsewhere, including information incorporated herein by reference to other documents, are “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance or achievements of Seacoast Banking Corporation of Florida (“Seacoast” or the “Company”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may”, “will”, “anticipate”, “assume”, “should”, “indicate”, “would”, “believe”, “contemplate”, “expect”, “estimate”, “continue”, “plan”, “point to”, “project”, “could”, “intend”, “target”, and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:

•  the effects of future economic, business and market conditions, domestic and foreign;

•  governmental monetary and fiscal policies;

•  legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, and changes in the scope and cost of FDIC insurance and other coverages;

•  changes in accounting policies, rules and practices;

•  the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities;

•  credit risks of borrowers;

•  changes in the availability and cost of credit and capital in the financial markets;

•  changes in the prices, values and sales volumes of residential and commercial real estate;

•  the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;

•  the failure of assumptions underlying the establishment of reserves for possible loan losses and other estimates;

•  the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions;

•  changes in technology or products that may be more difficult, costly, or less effective, than anticipated;

•  the effects of war or other conflicts, acts of terrorism or other catastrophic events that may affect general economic conditions; and

•  other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we make with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made.

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Part I

Item 1.   Business

General

We are a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and our principal subsidiary is Seacoast National Bank (“Seacoast National”). Seacoast National commenced its operations in 1933, and operated prior to 2006 as “First National Bank & Trust Company of the Treasure Coast”.

We and our subsidiaries offer a full array of deposit accounts and retail banking services, engage in consumer and commercial lending and provide a wide variety of trust and asset management services, as well as securities and annuity products. Seacoast National had 42 banking offices in 14 counties in Florida at year-end 2008.

We have 24 branches in the “Treasure Coast,” including the counties of Martin, St. Lucie and Indian River on Florida’s southeastern coast. In April 2005, we acquired a bank with three offices in Orlando, Florida. In April 2006, we acquired a bank with nine offices in seven counties, including DeSoto, Glades, Hardee, Hendry, Highlands, Okeechobee, and St. Lucie Counties. De novo banking offices were opened in Palm Beach County in May 2006, Brevard County in February 2007 and April 2008, Broward County in October 2007, and St. Lucie County in March 2008. Seacoast National closed its Port St. Lucie Wal-Mart location in St. Lucie County in December 2007 and its operations were relocated to a nearby full-service branch, its Ft. Pierce Wal-Mart location in St. Lucie County in February 2008, and its Mariner Square and Juno Beach locations in Martin and Palm Beach County, respectively, in March 2008, and their operations moved to newer branches. Our Ft. Pierce and Rivergate locations in St. Lucie County and its Wedgewood location in Martin County were relocated to newly constructed buildings in close proximity to their original sites in June 2008, October 2008 and January 2009, respectively. We operate banking offices in the following locations:

•  four in Stuart,

•  two in Palm City,

•  two in Jensen Beach,

•  one on Hutchinson Island,

•  one in Hobe Sound,

•  six in Vero Beach,

•  two in Sebastian,

•  five in Port St. Lucie,

•  one in Ft. Pierce,

•  four in northern Palm Beach County,

•  three in Orlando,

•  two in Okeechobee,

•  one in Arcadia,

•  one in Moore Haven,

•  one in Wauchula,

•  one in Clewiston,

•  one in Labelle,

•  one in Lake Placid,

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•  two in Viera; and

•  one in Ft. Lauderdale

Loan production offices for our Seacoast Marine Finance Division are located in Ft. Lauderdale and Melbourne, Florida and in Alameda and Newport Beach, California.

Seacoast National opened five new banking offices in 2008, and five existing banking locations in Martin, St. Lucie and Palm Beach County were relocated to these new banking offices.

Most of our banking offices have one or more automated teller machine (“ATMs”) that provide customers with 24-hour access to their deposit accounts. We are a member of the “Star System,” the largest electronic funds transfer organization in the United States, which permits banking customers access to their accounts at 2.2 million participating ATM and retail locations throughout the United States.

Seacoast National’s “MoneyPhone” system allows customers to access information on their loan or deposit account balances, to transfer funds between linked accounts, to make loan payments, and to verify deposits or checks that may have cleared. This service is available 24 hours a day, seven days a week.

In addition, customers may access information via Seacoast National’s Customer Service Center (“CSC”). From 7 A.M. to 7 P.M., Monday through Friday, and on Saturdays from 9 A.M. to 4 P.M., our CSC staff is available to open accounts, take applications for certain types of loans, resolve account issues and offer information on other bank products and services to existing and potential customers.

We also offer Internet banking. Our Internet service allows customers to access transactional information on their deposit accounts, review loan and deposit balances, transfer funds between linked accounts and make loan payments from a deposit account, 24 hours a day, seven days a week.

We have operated an office of Seacoast Marine Finance Division, a division of Seacoast National, in Ft. Lauderdale, Florida since February 2000. Seacoast Marine is staffed with experienced marine lending professionals with a marketing emphasis on marine loans of $200,000 and greater, with the majority of loan production sold to correspondent banks on a non-recourse basis. In November 2002, the Seacoast Marine Finance Division added offices and personnel in California to serve the western markets.

We have six indirect, wholly-owned subsidiaries:

•  FNB Brokerage Services, Inc. (“FNB Brokerage”), which provides brokerage and annuity services;

•  FNB Insurance Services, Inc. (“FNB Insurance”), an inactive subsidiary, which was formed to provide insurance agency services;

•  South Branch Building, Inc., which is a general partner in a partnership that constructed a branch facility of Seacoast National;

•  TCoast Holdings, LLC, which was formed to own and operate certain properties acquired through foreclosure;

•  BR West, LLC, which was formed in 2008 to hold foreclosed real estate, but which was inactive at year end 2008.

•  FNB Property Holdings, Inc., a Delaware holding company, whose primary asset is an investment in FNB RE Services, Inc.; and

•  FNB RE Services, Inc., a real estate investment trust that holds mortgage loans originated by Seacoast National.

We directly own all the common equity in five statutory trusts:

•  SBCF Capital Trust I, formed on March 31, 2005 for the purpose of issuing $20 million in trust preferred securities;

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•  SBCF Statutory Trust II, formed on December 16, 2005, also for the purpose of issuing $20 million in trust preferred securities.

•  SBCF Statutory Trust III, formed on June 29, 2007, for the purpose of issuing $12 million in trust preferred securities; and

•  SBCF Statutory Trusts IV and V, formed on May 16, 2008 for the purpose of issuing additional preferred securities in the future. These have been inactive since their formation.

In addition, Big O RV, Inc. was also formed to own and operate certain properties acquired through foreclosure and was reactivated during 2008. It owned one asset that it sold in the Fourth Quarter of 2008, and it was dissolve at the end of 2008.

With the exception of FNB Property Holdings, Inc. and FNB RE Services, Inc., the operations of each of these direct and indirect subsidiaries contribute less than 10% of our consolidated assets and revenues.

As a bank holding company, we are a legal entity separate and distinct from our subsidiaries, including Seacoast National. We coordinate the financial resources of the consolidated enterprise and maintain financial, operational and administrative systems that allow centralized evaluation of subsidiary operations and coordination of selected policies and activities. Our operating revenues and net income are derived primarily from Seacoast National through dividends and fees for services performed. See “Supervision and Regulation.”

As of December 31, 2008, we had total consolidated assets of approximately $2,314 million, total deposits of approximately $1,810 million, total consolidated liabilities, including deposits, of approximately $2,098 million and consolidated shareholders’ equity of approximately $216 million. Our operations are discussed in more detail under “Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations” incorporated by reference from our 2008 Annual Report.

Our principal offices are located at 815 Colorado Avenue, Stuart, Florida 34994, and the telephone number at that address is (772) 287-4000. We and our subsidiary Seacoast National maintain Internet websites at www.seacoastbanking.com and www.seacoastnational.com, respectively. We are not incorporating the information on our or Seacoast National’s website into this report, and none of these websites nor the information appearing on these websites is included or incorporated in, or is a part of, this report. We file annual, quarterly and current reports, proxy statements, and other information with the SEC. You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference rooms. Our SEC filings are also available to the public free of charge from the SEC’s web site at www.sec.gov.

In addition, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.

Employees

As of December 31, 2008, we and our subsidiaries employed 446 full-time equivalent employees. We consider our employee relations to be good, and we have no collective bargaining agreements with any employees.

Expansion of Business

We have expanded our products and services to meet the changing needs of the various segments of our market, and we presently expect to continue this strategy. Prior to 1991, we had expanded geographically primarily through the addition of branches, including the acquisition of a branch in St. Lucie County. We also from time to time have acquired banks, bank branches and deposits, and have opened new branches and loan production offices.

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In 2002, we entered Palm Beach County by establishing a new branch office. On April 30, 2005, we acquired Century National Bank, a commercial bank headquartered in Orlando, Florida. Century National Bank operated as our wholly owned subsidiary until August 2006 when it was merged with Seacoast National.

In April 2006, we acquired Big Lake National Bank (“Big Lake”), a commercial bank headquartered in Okeechobee, Florida, inland from our Treasure Coast markets. Big Lake was merged with Seacoast National in June 2006.

Florida law permits statewide branching, and Seacoast National has expanded, and anticipates future expansion, by opening additional bank offices and facilities, as well as by acquisition of other financial institutions and branches. Since 2002, we have opened and acquired 17 net new offices in 14 Counties of Florida. The Seacoast Marine Finance Division operates loan production offices, or “LPOs”, in Ft. Lauderdale, Florida, Newport Beach and Alameda, California, and Melbourne, Florida. See “Item 2. Properties”.

We regularly evaluate possible mergers, acquisitions and other expansion opportunities.

Seasonality; Cycles

We believe our commercial banking operations are somewhat seasonal in nature. Investment management fees and deposits often peak in the first and second quarters, and often are lowest in the third quarter, as do transactional fees from merchants, and ATM and debit card use. Public deposits tend to increase with tax collections in the second and fourth quarters and decline with spending thereafter.

Deposits can increase due to hurricanes as insurers disburse insurance proceeds and hurricane-related damage is repaired. No major hurricanes occurred in 2006, 2007, or 2008 and deposits were more normal than 2004 and 2005, when major hurricanes hit our coastal areas.

Commercial and residential real estate activity, demand, prices and sales volumes vary based upon various factors including economic conditions, interest rates and credit availability.

Competition

We and our subsidiaries operate in the highly competitive markets of Martin, St. Lucie, Indian River, Brevard, Palm Beach and Broward Counties, in southeastern Florida and in the Orlando metropolitan statistical area. We also operate in six competitive counties in central Florida near Lake Okeechobee. Seacoast National not only competes with other banks in its markets, but also competes with various other types of financial institutions for deposits, commercial, fiduciary and investment services and various types of loans and other financial services. Seacoast National also competes for interest-bearing funds with a number of other financial intermediaries and investment alternatives, including mutual funds, brokerage and insurance firms, governmental and corporate bonds, and other securities.

Our competitors include not only financial institutions based in the State of Florida, but also a number of large out-of-state and foreign banks, bank holding companies and other financial institutions that have an established market presence in the State of Florida, or that offer products by mail, telephone or over the Internet. Many of our competitors are engaged in local, regional, national and international operations and have greater assets, personnel and other resources than us. Some of these competitors are subject to less regulation and/or more favorable tax treatment than us. Many of these institutions have greater resources, broader geographic markets and higher lending limits than us and may offer various services that we do not offer. In addition, these institutions may be able to better afford and make broader use of media advertising, support services, and electronic and other technology than us. To offset these potential competitive disadvantages, we depend on our reputation as an independent, “super” community bank headquartered locally, our personal service, our greater community involvement and our ability to make credit and other business decisions quickly and locally.

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Supervision and Regulation

Bank holding companies and banks are extensively regulated under federal and state law. This discussion is qualified in its entirety by reference to the particular statutory and regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to us and our bank subsidiary’s business. Supervision, regulation, and examination of us and Seacoast National and our respective subsidiaries by the bank regulatory agencies are intended primarily for the protection of bank depositors rather than holders of our capital stock. Any change in applicable law or regulation may have a material effect on our business.

We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board and Nasdaq. In particular, we are required to include management and independent auditor reports on internal controls as part of our annual report on Form 10-K in order to comply with Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls, including compliance with the SEC rules on internal controls, and have and expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to comply with these internal control rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, and the values of our securities. The assessments of our financial reporting controls as of December 31, 2008 are included elsewhere in this report with no material weaknesses reported.

Bank Holding Company Regulation

We are a bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the BHC Act. Bank holding companies generally are limited to the business of banking, managing or controlling banks, and other activities that the Federal Reserve determines to be closely related to banking, or managing or controlling banks and a proper incident thereto. We are required to file with the Federal Reserve periodic reports and such other information as the Federal Reserve may request. The Federal Reserve examines us, and may examine our non-bank subsidiaries.

The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all the assets of any bank, or for a merger or consolidation of a bank holding company with another bank holding company. With certain exceptions, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership or control of voting shares of any company which is not a bank or bank holding company, and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or performing services for its authorized subsidiaries. A holding company, may, however, engage in or acquire an interest in a company that engages in activities which the Federal Reserve has determined by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

The Gramm-Leach-Bliley Act of 1999 (the “GLB”) substantially revised the statutory restrictions separating banking activities from certain other financial activities. Under the GLB, bank holding companies that are “well-capitalized” and “well-managed”, as defined in Federal Reserve Regulation Y, whose depository institution subsidiaries which have and maintain “satisfactory” Community Reinvestment Act of 1977, as amended (the “CRA”) ratings, and meet certain other conditions, can elect to become “financial holding companies”. Financial holding companies and their subsidiaries are permitted to acquire or engage in activities such as insurance underwriting, securities underwriting, travel agency activities, a broad range of insurance agency activities, merchant banking, and other activities that the Federal Reserve determines to be financial in nature or complementary thereto. In addition, under the merchant banking authority added by the GLB and Federal Reserve regulation, financial holding companies are authorized to invest in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment with the intention of limiting the term of its investment and does not manage the company on a day-to-day basis, and the invested company does not cross-market with any of the financial holding company’s controlled depository institutions. Financial holding companies continue to be subject to supervision and regulation of the

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Federal Reserve, but the GLB applies the concept of functional regulation to the activities conducted by subsidiaries. For example, insurance activities would be subject to supervision and regulation by state insurance authorities. While we have not become a financial holding company, we may seek to do so in the future in order to exercise the broader activity powers provided by the GLB. Banks may also engage in similar “financial activities” through subsidiaries. The GLB also includes consumer privacy provisions, and the federal bank regulatory agencies have adopted extensive privacy rules implementing these statutory provisions.

We are a legal entity separate and distinct from Seacoast National and our other subsidiaries. Various legal limitations restrict our banking subsidiaries from lending or otherwise supplying funds to us or our non-bank subsidiaries. We and our banking subsidiaries are subject to Section 23A of the Federal Reserve Act and Federal Reserve Regulation W thereunder. Section 23A defines “covered transactions” to include extensions of credit, and limits a bank’s covered transactions with any affiliate to 10% of such bank’s capital and surplus. All covered and exempt transactions between a bank and its affiliates must be on terms and conditions consistent with safe and sound banking practices, and banks and their subsidiaries are prohibited from purchasing low-quality assets from the bank’s affiliates. Finally, Section 23A requires that all of a bank’s extensions of credit to its affiliates be appropriately secured by acceptable collateral, generally United States government or agency securities. We and our bank subsidiaries also are subject to Section 23B of the Federal Reserve Act, which generally requires covered and other transactions among affiliates to be on terms, including credit standards, that are substantially the same or at least as favorable to the bank or its subsidiary as those prevailing at the time for similar transactions with unaffiliated companies.

The BHC Act permits acquisitions of banks by bank holding companies, such that we and any other bank holding company, whether located in Florida or elsewhere, may acquire a bank located in any other state, subject to certain deposit-percentage, age of bank charter requirements, and other restrictions. Federal law also permits national and state-chartered banks to branch interstate through acquisitions of banks in other states. Florida’s Interstate Branching Act (the “Florida Branching Act”) permits interstate branching. Under the Florida Branching Act, with the prior approval of the Florida Department of Banking and Finance, a Florida bank may establish, maintain and operate one or more branches in a state other than the State of Florida pursuant to a merger transaction in which the Florida bank is the resulting bank. In addition, the Florida Branching Act provides that one or more Florida banks may enter into a merger transaction with one or more out-of-state banks, and an out-of-state bank resulting from such transaction may maintain and operate the branches of the Florida bank that participated in such merger. An out-of-state bank, however, is not permitted to acquire a Florida bank in a merger transaction, unless the Florida bank has been in existence and continuously operated for more than three years.

Federal Reserve policy requires a bank holding company to act as a source of financial and managerial strength and to preserve and protect its bank subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted. In addition, under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), where a bank holding company has more than one bank or thrift subsidiary, each of the bank holding company’s subsidiary depository institutions are responsible for any losses to the Federal Deposit Insurance Corporation (“FDIC”) resulting from an affiliated depository institution’s failure. Accordingly, a bank holding company may be required to loan money to its bank subsidiaries in the form of capital notes or other instruments that qualify as capital under bank regulatory rules. However, any loans from the holding company to such subsidiary banks likely will be unsecured and subordinated to such bank’s depositors and perhaps to other creditors of the bank.

Bank and Bank Subsidiary Regulation

Seacoast National is subject to supervision, regulation and examination by the Office of the Comptroller of the Currency (the “OCC”), which monitors all areas of operations, including reserves, loans, mortgages, the issuance of securities, payment of dividends, establishing branches, capital adequacy, and compliance with laws. Seacoast National is a member of the FDIC and, as such, its deposits are insured by the FDIC to the maximum extent provided by law. See “FDIC Insurance Assessments”.

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Under Florida law, Seacoast National may establish and operate branches throughout the State of Florida, subject to the maintenance of adequate capital and the receipt of OCC approval.

The OCC has adopted the Federal Financial Institutions Examination Council’s (“FFIEC”) rating system and assigns each financial institution a confidential composite rating based on an evaluation and rating of six essential components of an institution’s financial condition and operations including Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk, as well as the quality of risk management practices. For most institutions, the FFIEC has indicated that market risk primarily reflects exposures to changes in interest rates. When regulators evaluate this component, consideration is expected to be given to: management’s ability to identify, measure, monitor, and control market risk; the institution’s size; the nature and complexity of its activities and its risk profile, and the adequacy of its capital and earnings in relation to its level of market risk exposure. Market risk is rated based upon, but not limited to, an assessment of the sensitivity of the financial institution’s earnings or the economic value of its capital to adverse changes in interest rates, foreign exchange rates, commodity prices, or equity prices; management’s ability to identify, measure, monitor, and control exposure to market risk; and the nature and complexity of interest rate risk exposure arising from nontrading positions.

FNB Brokerage, a Seacoast National subsidiary, is registered as a securities broker-dealer under the Exchange Act and is regulated by the Securities and Exchange Commission (the “Commission” or “SEC”). It also is subject to examination and supervision of its operations, personnel and accounts by the Financial Industry Regulatory Authority, Inc. (“FINRA”). FNB Brokerage is a separate and distinct entity from Seacoast National, and must maintain adequate capital under the SEC’s net capital rule. The net capital rule limits FNB Brokerage’s ability to reduce capital by payment of dividends or other distributions to Seacoast National. FNB Brokerage is also authorized by the State of Florida to act as a securities dealer and an investment advisor.

FNB Insurance, a Seacoast National subsidiary, is authorized by the State of Florida to market insurance products as an agent. FNB Insurance is a separate and distinct entity from Seacoast National and is subject to supervision and regulation by state insurance authorities. It is a financial subsidiary, but is inactive.

The Internal Revenue Code of 1986 (the “Code”), as amended, provides requirements that must be met with respect to Seacoast National’s indirect subsidiary, FNB RE Services, Inc., which has elected to be taxed as a “real estate investment trust” under the Code.

Community Reinvestment Act

We and our banking subsidiaries are subject to the provisions of the CRA and related federal bank regulatory agencies’ regulations. Under the CRA, all banks and thrifts have a continuing and affirmative obligation, consistent with their safe and sound operation, to help meet the credit needs for their entire communities, including low- and moderate-income neighborhoods. The CRA requires a depository institution’s primary federal regulator, in connection with its examination of the institution, to assess the institution’s record of assessing and meeting the credit needs of the communities served by that institution, including low- and moderate-income neighborhoods. The bank regulatory agency’s assessment of the institution’s record is made available to the public. Further, such assessment is required of any institution which has applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage for a newly-chartered institution; (iii) establish a new branch office that accepts deposits; (iv) relocate an office; (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution, or (vi) expand other activities, including engaging in financial services activities authorized by the GLB. A less than satisfactory CRA rating will slow, if not preclude, expansion of banking activities and prevent a company from becoming or remaining a financial holding company.

Following the enactment of the GLB, CRA agreements with private parties must be disclosed and annual CRA reports must be made to a bank’s primary federal regulator. A bank holding company will not be permitted to become or remain a financial holding company and no new activities authorized under GLB may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a “satisfactory” CRA rating in its latest CRA examination. Federal CRA regulations require, among

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other things, that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered in the CRA evaluation.

Seacoast National is also subject to, among other things, the provisions of the Equal Credit Opportunity Act (the “ECOA”) and the Fair Housing Act (the “FHA”), both of which prohibit discrimination based on race or color, religion, national origin, sex, and familial status in any aspect of a consumer or commercial credit or residential real estate transaction. The Department of Justice (the “DOJ”), and the federal bank regulatory agencies have issued an Interagency Policy Statement on Discrimination in Lending that provides guidance to financial institutions in determining whether discrimination exists, how the agencies will respond to lending discrimination, and what steps lenders might take to prevent discriminatory lending practices. The DOJ has increased its efforts to prosecute what it regards as violations of the ECOA and FHA.

Payments of Dividends

We are a legal entity separate and distinct from Seacoast National and other subsidiaries. Our primary source of cash, other than securities offerings, is dividends from Seacoast National. The prior approval of the OCC is required if the total of all dividends declared by a national bank (such as Seacoast National) in any calendar year will exceed the sum of such bank’s net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits any national bank from paying dividends that would be greater than such bank’s undivided profits after deducting statutory bad debts in excess of such bank’s allowance for possible loan losses.

In addition, our company and Seacoast National are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The OCC and the Federal Reserve have indicated that paying dividends that deplete a national or state member bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. The OCC and the Federal Reserve have each indicated that depository institutions and their holding companies should generally pay dividends only out of current operating earnings. In 2008, Seacoast National recorded a net loss and paid $6.8 million in dividends to us. In 2007, Seacoast National paid 116% of its net profits in dividends to us.

Prior approval by the OCC is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank’s “profits”, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this restriction, Seacoast National cannot distribute any dividends to us, without prior OCC approval, as of December 31, 2008.

Capital

The Federal Reserve and the OCC have risk-based capital guidelines for bank holding companies and national banks, respectively. These guidelines require a minimum ratio of capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) of 8%. At least half of the total capital of a bank holding company must consist of common equity, retained earnings and a limited amount of qualifying preferred stock, less goodwill and certain core deposit intangibles (“Tier 1 capital”). The remainder may consist of non-qualifying preferred stock, qualifying subordinated, perpetual, and/or mandatory convertible debt, term subordinated debt and intermediate term preferred stock and up to 45% of pretax unrealized holding gains on available for sale equity securities with readily determinable market values that are prudently valued, and a limited amount of any loan loss allowance (“Tier 2 capital” and, together with Tier 1 capital, “Total Capital”). The Federal Reserve has stated that Tier 1 voting common equity should be the predominant form of capital.

In addition, the Federal Reserve and the OCC have established minimum leverage ratio guidelines for bank holding companies and national banks, which provide for a minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets (“leverage ratio”) equal to 3%, plus an additional cushion of at least 1.0% to 2.0%, if the institution has less than the highest regulatory rating. The guidelines also provide that institutions

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experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. All bank holding companies and banks are expected to hold capital commensurate with the level and nature of their risks, including the volume and severity of their problem loans, and higher capital may be required as a result of an institution’s risk profile. Lastly, the Federal Reserve’s guidelines indicate that the Federal Reserve will continue to consider a “tangible Tier 1 leverage ratio” (deducting all intangibles) in evaluating proposals for expansion or new activities. The OCC and Seacoast National have agreed by letter agreement that Seacoast National shall maintain specific minimum capital ratios by March 31, 2009 and subsequent periods, including a total risk based capital ratio of 12.0 percent and a Tier 1 leverage ratio of 7.50 percent. Recently, the federal bank regulatory agencies have begun seeking higher capital levels than the minimums due to market conditions and the OCC has indicated that Seacoast National, in light of risks in its loan portfolio and local economic conditions, especially in the real estate markets, should hold capital commensurate with such risks.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal bank regulatory agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, and “critically undercapitalized”. A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.

All of the federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutions. The relevant minimum capital measures are the total risk-based capital ratio, Tier 1 capital ratio, and the leverage ratio. Under the regulations, a national bank will be (i) “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 capital ratio of 6% or greater, and a leverage ratio of at least 5%, and is not subject to any written agreement, order, capital directive, or prompt corrective action directive by a federal bank regulatory agency to meet and maintain a specific capital level for any capital measure, (ii) “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 capital ratio of 4% or greater, and a leverage ratio of 4% or greater (3% in certain circumstances), (iii) “undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier 1 capital ratio of less than 4% (3% in certain circumstances), (iv) “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6% or a Tier I capital ratio of less than 3%, or a leverage ratio of less than 3%, or (v) “critically undercapitalized” if its tangible equity is equal to or less than 2% of average quarterly tangible assets. The federal bank regulatory agencies have authority to require additional capital.

As of December 31, 2008, the consolidated capital ratios of the Seacoast and Seacoast National were as follows:

	Regulatory			Seacoast			Seacoast
	Minimum			(Consolidated)			National
Tier 1 capital ratio		4.0	%		14.0	%		11.0	%
Total risk-based capital ratio		8.0	%		12.8	%		12.2	%
Leverage ratio		3.0-5.0	%		9.6	%		9.1	%

Seacoast National has agreed with the OCC to maintain a Tier 1 leverage capital ratio of at least 7.50% and a total risk-based capital ratio of at least 12.0% as of March 31, 2009.

FDICIA

FDICIA directs that each federal bank regulatory agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares, and such other standards as the federal bank regulatory agencies deem appropriate.

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FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit a capital restoration plan for approval. For a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of 5% of the depository institution’s total assets at the time it became undercapitalized and the amount necessary to bring the institution into compliance with applicable capital standards. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the controlling holding company fails to fulfill its obligations under FDICIA and files (or has filed against it) a petition under the federal Bankruptcy Code, the claim for such liability would be entitled to a priority in such bankruptcy proceeding over third party creditors of the bank holding company. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. Because our company and Seacoast National exceed applicable capital requirements, the respective managements of our company and Seacoast National do not believe that the provisions of FDICIA have had any material effect on our company and Seacoast National or our respective operations.

FDICIA also contains a variety of other provisions that may affect the operations of our company and Seacoast National, including reporting requirements, regulatory standards for real estate lending, “truth in savings” provisions, the requirement that a depository institution give 90 days’ prior notice to customers and regulatory authorities before closing any branch, and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not well capitalized, or are adequately capitalized and have not received a waiver from the FDIC. Seacoast National was well capitalized at December 31, 2008, and brokered deposits are not restricted.

Enforcement Policies and Actions

The Federal Reserve and the OCC monitor compliance with laws and regulations. Violations of laws and regulations, or other unsafe and unsound practices, may result in these agencies imposing fines or penalties, cease and desist orders, or taking other enforcement actions. Under certain circumstances, these agencies may enforce these remedies directly against officers, directors, employees and others participating in the affairs of a bank or bank holding company.

Seacoast National entered into a formal agreement with the OCC on December 16, 2008 to improve Seacoast National’s asset quality. Under the formal agreement, Seacoast National’s board of directors has appointed a compliance committee to monitor and coordinate Seacoast National’s performance under the formal agreement in December 2008. The formal agreement provides for the development and implementation of written programs to reduce Seacoast National’s credit risks, monitor and reduce the level of criticized assets, and manage commercial real estate (“CRE”) loan concentrations in light of current adverse CRE market conditions.

The International Money Laundering Abatement and Anti-Terrorism Funding Act of 2001 specifies “know your customer” requirements that obligate financial institutions to take actions to verify the identity of the account holders in connection with opening an account at any U.S. financial institution. Banking regulators will consider compliance with the Act’s money laundering provisions in acting upon acquisition and merger proposals, and sanctions for violations of the Act can be imposed in an amount equal to twice the sum involved in the violating transaction, up to $1 million.

Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (“USA PATRIOT”) Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers.

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The USA PATRIOT Act requires financial institutions to establish anti-money laundering programs. The USA PATRIOT Act sets forth minimum standards for these programs, including:

•  The development of internal policies, procedures, and controls;

•  The designation of a compliance officer;

•  an ongoing employee training program; and

•  an independent audit function to test the programs.

Fiscal and Monetary Policy

Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the major portion of a bank’s earnings. Thus, the earnings and growth of our company and Seacoast National are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve, and the reserve requirements on deposits.

In 2008, the Federal Reserve has taken various actions to increase market liquidity and reduce interest rates.

The Federal Reserve lowered its target federal funds rate from 5.25% per annum on August 7, 2007 to 3.00% on January 30, 2008, and finally to 0-0.25% on December 16, 2008. The Federal Reserve’s discount rate was reduced on December 16, 2008 to its current rate of 0.50% per annum, down from 5.75% on September 17, 2007, 4.75% on January 2, 2008, and 1.25% on October 29, 2008. The Federal Reserve has extended the term for which banks can borrow from the discount window to up to 90 days; and developed a program, called the Term Auction Facility, under which predetermined amounts of credit are auctioned to depository institutions for terms of up to 84 days. These innovations resulted in large increases in the amount of Federal Reserve credit extended to the banking system.

The Federal Reserve also expanded its liquidity programs through the Primary Dealer Credit Facility (“PDCF”) to provide primary dealers in the government securities market with access to the Federal Reserve’ s discount window, the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (the “AMLF”), which provides loans to depository institutions to purchase asset-backed commercial paper from money market mutual funds, and the Term Securities Lending Facility (the “TSLF”), under which the Federal Reserve Bank of New York auctions term loans of Treasury securities to primary dealers. Several other liquidity-related facilities have also been established, such as the Commercial Paper Funding Facility (the “CPFF”), which provides a liquidity backstop to U.S. issuers of commercial paper, the Money Market Investor Funding Facility (the “MMIFF”), which provides liquidity to U.S. money market investors, and the temporary reciprocal currency arrangements (swap lines) with 14 other central banks. These facilities are currently scheduled to end April 30, 2009.

In addition, the Federal Reserve and the Treasury have jointly announced a Term Asset-Backed Securities Loan Facility (“TALF”) that will lend against AAA-rated asset-backed securities collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration. On February 10, 2009, the Federal Reserve announced that it was prepared to undertake a substantial expansion of the TALF, which could increase its size to as much as $1 trillion and could broaden the eligible collateral to encompass other types of newly issued AAA-rated asset-backed securities, such as commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities. The Federal Reserve has stated that an expansion of the TALF would be supported by the Treasury providing additional funds from the Troubled Asset Relief Program (“TARP”).

The Federal Reserve announced on November 28, 2008 that it was initiating a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs) — Fannie Mae, Freddie Mac,

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and the Federal Home Loan Banks — and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. This action was taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally. Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions, and purchases of up to $500 billion in MBS will be conducted by asset managers. Purchases of both direct obligations and MBS were expected to take place over several quarters.

Beginning October 6, 2008, the Federal Reserve began paying interest on depository institutions’ required and excess reserve balances. The payment of interest on excess reserve balances was expected to give the Federal Reserve greater scope to use its lending programs to address conditions in credit markets while also maintaining the federal funds rate close to the target rate established by the Federal Open Market Committee.

The nature and timing of any changes in such policies and their effect on our Company and Seacoast National cannot be predicted.

FDIC Insurance Assessments

Seacoast National’s deposits are insured by the FDIC’s Deposit Insurance Fund (“DIF”), and Seacoast National is subject to FDIC assessments for its deposit insurance, as well as assessments by the FDIC to pay interest on Financing Corporation (“FICO”) bonds. During 2006 through 2008, the FDIC’s risk-based deposit insurance assessment schedule ranged from zero to 43 basis points per annum. During 2006 and 2007, Seacoast National, including its predecessors from their date of acquisition, paid no FDIC deposit insurance premiums. FICO assessments of approximately $325,000, $225,000 and $224,000 were paid to the FDIC in 2006, 2007 and 2008, respectively.

Congress passed the Federal Deposit Insurance Reform Act (the “Reform Act”) in February 2006. As a result, deposits remained insured up to a maximum of $100,000, but the amount of deposit insurance will be adjusted every five years based upon inflation. Retirement accounts were insured for up to $250,000, and banks that are less than adequately capitalized will be unable to accept employee benefit deposits. This law also changed the way FDIC insurance assessments and credits are calculated. The Emergency Economic Stabilization Act of 2008 (“EESA”) temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor through December 31, 2009. EESA provides that the temporary increase in deposit insurance coverage is not taken into account for FDIC insurance assessment purposes.

During 2007 and 2008, the FDIC used the following risk categories and initial deposit insurance assessment rates:

	Deposit Insurance
Risk Category	Assessment Rate
I	5 to 7 basis points
II	10 basis points
III	28 basis points
IV	43 basis points

Seacoast National paid FDIC deposit insurance assessments of $1,804,000 in 2008 based upon the expiration of a one-time credit provided by the Reform Act and FDIC rules for deposit insurance premiums previously paid. At the beginning of 2007, this credit totaled approximately $1,240,000. FDIC insurance assessments for 2007 were offset entirely by an equivalent amount of the credit during 2007, and the credit was fully used by early 2008. Assessments will change with the levels of our deposits and as a result of quarterly changes by the FDIC in its assessment rates or changes in Seacoast National’s risk category.

Effective January 1, 2009, the FDIC has increased it deposit insurance assessment rates uniformly by 7 basis points annually for the first quarter 2009 assessment period only. Annual rates applicable to the first

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quarter and second quarter 2009 assessments, which would be collected at the end of June and September, are as follows:

	First Quarter	Second Quarter
	2009	2009
	Deposit Insurance	Initial Deposit Insurance
Risk Category	Assessment Rate	Base Assessment Rate
I	12 to 14 basis points	12 to 16 basis points
II	17 basis points	22 basis points
III	35 basis points	32 basis points
IV	50 basis points	45 basis points

The FDIC has adopted another final rule effective April 1, 2009, to change the way that the FDIC’s assessment system differentiates for risk, make corresponding changes to assessment rates beginning with the second quarter of 2009, as well as other changes to the deposit insurance assessment rules. The FDIC’s new rules are expected to include a potential decrease for long-term unsecured debt, including senior and subordinated debt and, for small institutions with assets under $10 billion, a portion of Tier 1 capital; (2) a potential increase for secured liabilities above a threshold amount; and (3) for non-Risk Category I institutions, a potential increase for brokered deposits above a threshold amount. The new assessment rules are expected to also increase assessments for banks that use brokered deposits above a threshold level to fund “rapid asset growth”. The FDIC also has proposed a rule that, if it becomes final, will impose a 20 basis points special assessment on all institutions for the quarter of June 30, 2009 and will grant the FDIC the authority to impose up to a further 10 basis points special assessment at the end of any calendar quarter whenever the estimated Deposit Insurance Fund falls to a level that FDIC board of directors believes would adversely affect public confidence or to a level close to zero or negative. Overall, we believe it likely that FDIC insurance premiums will continue to increase, generally for the foreseeable future.

FICO assessments are set by the FDIC quarterly and ranged from 1.32 basis points in the first quarter of 2006 to 1.24 basis points in the last quarter of 2006, 1.22 basis points in the first quarter of 2007 to 1.14 basis points in the last quarter of 2007, and 1.14 basis points in the first quarter of 2008 to 1.10 basis points in the last quarter of 2008. The FICO assessment rate for the first quarter of 2009 has increased to 1.14 basis points.

Under the FDIC’s Temporary Liquidity Guarantee Program (the “TLG”), the entire amount in any eligible noninterest bearing transaction accounts will be guaranteed by the FDIC to the extent such balances are not covered by FDIC insurance. The TLG also provides FDIC guarantees to newly issued senior unsecured debt of banks and holding companies. The FDIC also proposed on February 27, 2009 to extend the debt guarantee program to cover otherwise eligible senior unsecured debt that is mandatorily convertible to common stock. We and Seacoast National have not opted out of either guarantee programs. Should we or Seacoast National choose to issue debt that is covered by the TLG’s debt guarantee program, we will be subject to an assessment determined by multiplying the amount of TLG-guaranteed debt times the term of the debt (expressed in years) times an annualized assessment rate, which will range from 50 to 100 basis point depending upon the maturity of the TLG-guaranteed debt. Banks that participate in the TLG’s noninterest bearing transaction account guarantee will pay the FDIC an annual assessment of 10 basis points on the amounts in such accounts above the amounts covered by FDIC deposit insurance. To the extent that these TLG assessments are insufficient to cover any loss or expenses arising from the TLG program, the FDIC is authorized to impose an emergency special assessment on FDIC-insured depository institutions. Legislation has been proposed to give the FDIC authority to impose charges for the TLG program upon depository institution holding companies, as well.

Participation in the Troubled Asset Relief Program

On October 3, 2008, EESA became law. Under the Troubled Asset Relief Program (“TARP”) authorized by EESA, the U.S. Department of the Treasury (the “Treasury”) established a capital purchase program (“CPP”) providing for the purchase of senior preferred shares of qualifying FDIC-insured depository institutions and their holding companies. On December 19, 2008, pursuant to a purchase agreement (the “Purchase Agreement”), we sold 2,000 shares of Series A Preferred Stock (the “Series A Preferred Stock”) and warrants (the “Warrant”) to acquire 1,179,245 shares of common stock exercisable at $6.36 per share

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(subject to adjustment under various anti-dilution provisions) to the U.S. Treasury (the “Treasury”) pursuant to the CPP for an aggregate consideration of $50 million. As a result of our participation in the CPP, we have agreed to certain limitations on our dividends, distributions and executive compensation.

Specifically, we are unable to declare dividend payments on our common, junior preferred or pari passu preferred shares if we are in arrears on the dividends on the Series A Preferred Stock. Further, without the Treasury approval, we are not permitted to increase dividends on our common stock above $0.01 per share without the Treasury’s approval until December 19, 2011 unless all of the Series A Preferred Stock has been redeemed or transferred by the Treasury. In addition, we cannot repurchase shares of common stock or use proceeds from the Series A Preferred Stock to repurchase trust preferred securities. Consent of the Treasury generally is required for us to make any stock repurchase until December 19, 2011 unless all of the Series A Preferred Stock has been redeemed or transferred by the Treasury to a third party. Further, our common, junior preferred or pari passu preferred shares may not be repurchased if we have not declared and paid all Series A Preferred Stock dividends.

In addition, we have adopted the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds the equity issued pursuant to the Purchase Agreement, including the common stock which may be issued pursuant to the warrant. These standards generally apply to our chief executive officer, chief financial officer and the three next most highly compensated senior executive officers. The standards include

•  ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;

•  required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate;

•  prohibition on making golden parachute payments to senior executives; and

•  an agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

On February 17, 2009, the President signed into law The American Recovery and Reinvestment Act of 2009 (the “ARRA”), commonly known as the economic stimulus bill. The ARRA imposes certain new executive compensation and corporate expenditure limits and corporate governance standards on all TARP recipients that are in addition to those previously announced by the Treasury, until the institution has repaid the Treasury all borrowings or preferred stock. Redemption of the outstanding Series A Preferred Stock and repurchase of the Warrant at market prices are now permitted under the ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency, the prior approval of the Federal Reserve and the maintenance of appropriate levels of capital by the issuers and their subsidiaries and necessary corporate actions.

On February 10, 2009, the Treasury announced the Financial Stability Plan, which earmarked the second $350 billion of funds authorized under the EESA. Among other things, the Financial Stability Plan include:

•  A capital assistance program that will invest in mandatory convertible preferred stock of certain qualifying institutions determined on a basis and through a process similar to the TARP CPP;

•  A consumer and business lending initiative to fund new consumer loans, small business loans and commercial mortgage asset-backed securities issuances;

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•  A new public-private investment fund that will leverage public and private capital with public financing to purchase up to $500 billion to $1 trillion of legacy “toxic assets” from financial institutions, and

•  Assistance for homeowners by providing up to $75 billion to reduce mortgage payments and interest rates and establishing loan modification guidelines for government and private programs.

Institutions receiving assistance under the Financial Stability Plan going forward will be subject to higher transparency and accountability standards, including restrictions on dividends, acquisitions, executive compensation, corporate and additional disclosure requirements.

The Treasury released a term sheet for the CAP on February 25, 2009. Under the CAP, qualifying U.S. banks, thrifts and their holding companies will be able to obtain additional capital through issuance of 9% mandatorily convertible preferred stock and warrants to the Treasury. We cannot predict the effect that the Financial Stability Plan may have on us or our business, financial condition or results of operations.

Recent Legislative and Regulatory Changes

Congress and the U.S. government continue to evaluate and develop various programs and initiatives designed to stabilize the financial and housing markets and stimulate the economy, including the recently announced Financial Stability Plan and various residential mortgage programs to reduce foreclosures and stabilize the housing market.

Legislative and regulatory proposals regarding changes in banking, and the regulation of banks, thrifts and other financial institutions and bank and bank holding company powers are being considered by the executive branch of the Federal government, Congress and various state governments, including Florida. Certain of these proposals, if adopted, could significantly change the regulation or operations of banks and the financial services industry. New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nation’s financial institutions. We cannot predict whether or in what form any proposed law or regulation will be adopted or the extent to which our business may be affected by any new law or regulation. The current stresses on the financial system and the economy generally and the powers granted to the Treasury under EESA and the ARRA make the nature and extent of future legislative and regulatory changes affecting financial institutions unpredictable and subject to rapid changes.

During 2006, the federal bank regulatory agencies released guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”). The Guidance defines commercial real estate (“CRE”) loans as exposures secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (that is, loans for which 50% or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to REITs and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner occupied CRE are generally excluded.

The Guidance requires that appropriate processes be in place to identify, monitor and control risks associated with real estate lending concentrations. This could include enhanced strategic planning, CRE underwriting policies, risk management, internal controls, portfolio stress testing and risk exposure limits as well as appropriately designed compensation and incentive programs. Higher allowances for loan losses and capital levels may also be required. The Guidance is triggered when CRE loan concentrations exceed either:

•  Total reported loans for construction, land development, and other land of 100% or more of a bank’s total capital; or

•  Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land of 300% or more of a bank’s total capital.

The Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a particular property type.

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The Guidance applies to our CRE lending activities due to the concentration in construction and land development loans. At December 31, 2008, we had outstanding $339.2 million in commercial construction and residential land development loans and $56.0 in residential construction loans to individuals, which represents approximately 179% of our capital at December 31, 2008. We have always had significant exposures to loans secured by commercial real estate due to the nature of the growing markets and the loan needs of both retail and commercial customers. We believe our long term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the Guidance. The federal bank regulators are looking more closely at the risks of various assets and asset categories and risk management, and the need for additional rules regarding liquidity, as well as capital rules that better reflects risk. We have agreed with the OCC to manage our CRE risks. See “-Enforcement Policies and Actions.”

Statistical Information

Certain statistical and financial information (as required by Guide 3) is included in response to Item 7 of this Annual Report on Form 10-K. Certain statistical information is also included in response to Item 6 and Item 8 of this Annual Report on Form 10-K.

Item 1A.   Risk Factors

Any of the following risks could harm our business, results of operations and financial condition and an investment in our stock. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Risks Related to Our Business

There can be no assurance that recent legislation and administrative actions authorizing the U.S. government to take direct actions within the financial services industry will help stabilize the U.S. financial system.

EESA was enacted on October 3, 2008.  Under EESA, the Treasury has the authority to, among other things, invest in financial institutions and purchase up to $700 billion of troubled assets and mortgages from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The Treasury announced its CPP, under which it committed to purchase up to $250 billion of preferred stock and warrants in eligible institutions. The Congressional Budget Office reports that, as of December 31, 2008, the Treasury had purchased $178 billion in shares of preferred stock and warrants from 214 U.S. financial institutions. EESA also temporarily increased FDIC deposit insurance coverage to $250,000 per depositor through December 31, 2009.

On February 10, 2009, the Treasury announced the Financial Stability Plan which, among other things, provides a forward-looking supervisory capital assessment program that is mandatory for the banking institutions with over $100 billion of assets and makes capital available to financial institutions qualifying under a process and criteria similar to the CPP. In addition, the ARRA was signed into law on February 17, 2009, and includes, among other things, extensive new restrictions on the compensation and governance arrangements of financial institutions.

Numerous actions by the Federal Reserve, the U.S. Congress, the Treasury, the FDIC, the SEC and others to address the current liquidity and credit crisis that has followed the sub-prime mortgage crisis that commenced in 2007. These measures include fiscal and monetary policy actions described under “Fiscal and Monetary Policy” and “Recent Legislative and Regulatory Changes.”

We cannot predict the actual effects of EESA, the ARRA and various governmental, regulatory, monetary and fiscal initiatives which have been and may be enacted will have on the financial markets, on us and on Seacoast National. The terms and costs of these activities, or the failure of these actions to help stabilize the financial markets, asset prices, market liquidity and a continuation or worsening of current financial market

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and economic conditions could materially and adversely affect our business, financial condition, results of operations, and the trading prices of our securities.

Difficult market conditions have adversely affected our industry and us.

We are exposed to downturns in the U.S. economy, and particularly the local markets in which we operate in Florida. Declines in the housing markets over the past year and a half, including falling home prices and sales volumes, and increasing foreclosures, have negatively affected the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities as well as major commercial and investment banks, as well as Seacoast National. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Many lenders and institutional investors have reduced or ceased providing funding to borrowers, including other financial institutions. This market turmoil and the tightening of credit have led to increased levels of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and reductions in business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely affected our business, financial condition and results of operations. We do not expect that the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and other financial institutions. In particular:

•  We expect to face increased regulation of our industry, including as a result of EESA, the ARRA and related initiatives by the U.S. government. Compliance with such regulations may increase our costs and limit our ability to pursue business opportunities.

•  Market developments and government programs may continue to adversely affect consumer confidence levels and may cause adverse changes in borrower behaviors and payment rates, resulting in further increases in delinquencies and default rates, which could affect our loan charge-offs and our provisions for credit losses.

•  Our ability to assess the creditworthiness of our customers or to estimate the values of our assets and collateral for loans will be reduced if the models and approaches we use become less predictive of future behaviors, valuations, assumptions or estimates. We estimate losses inherent in our credit exposure, the adequacy of our allowance for loan losses and the values of certain assets by using estimates based on difficult, subjective, and complex judgments, including estimates as to the effects of economic conditions and how these economic conditions might affect the ability of our borrowers to repay their loans or the value of assets.

•  Our ability to borrow from other financial institutions on favorable terms or at all, or to raise capital, could be adversely affected by further disruptions in the capital markets or other events, including, among other things, deteriorating investor expectations.

•  Failures of other depository institutions in our markets and increasing consolidation of financial services companies as a result of current market conditions could increase our deposits and assets, necessitating additional capital, and may have unexpected adverse effects upon our ability to compete effectively.

Nonperforming asset take significant time and adversely affect our results of operations and financial condition.

At December 31, 2008, our nonperforming loans (which consist of non-accrual loans) totaled $86.9 million, or 5.18% of the loan portfolio. At December 31, 2008, our nonperforming assets (which include foreclosed real estate) were $92.0 million, or 3.97% of assets. In addition, we had approximately $13.9 million in accruing loans that were 30-89 days delinquent at December 31, 2008. Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or other real estate owned, thereby adversely affecting our income, and increasing our loan administration costs. These loans also increase our risk profile. While we have reduced our problem assets through loan sales, workouts, restructuring and otherwise, decreases in the value of these assets, or the underlying collateral, or in these

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borrowers’ performance or financial conditions, whether or not due to economic and market conditions beyond our control, could adversely affect our business results of operations and financial condition. In addition, the resolution of nonperforming assets requires significant commitments of time from management and our directors, which can be detrimental to the performance of their other responsibilities. There can be no assurance that we will not experience further increases in nonperforming loans in the future.

Our allowance for loan losses may prove inadequate or we may be negatively affected by credit risk exposures.

Our business depends on the creditworthiness of our customers. We periodically review our allowance for loan losses for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and nonperforming assets. We cannot be certain that our allowance for loan losses will be adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets, or borrower behaviors towards repaying their loans. If the credit quality of our customer base or their debt service behavior materially decreases, if the risk profile of a market, industry or group of customers changes materially or weaknesses in the real estate markets and other economics persist or worsen, or if our allowance for loan losses is not adequate, our business, financial condition, including our liquidity and capital, and results of operations could be materially adversely affected.

Higher cost of insuring our deposits.

FDIC insurance premiums have increased substantially in 2009 already and we expect to pay significantly higher FDIC premiums in the future. Market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits, and the FDIC adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009 when it also raised deposit insurance premiums and proposed special assessments on FDIC members see “FDIC Insurance Assessments”.

Current levels of market volatility are unprecedented.

The capital and credit markets have been experiencing volatility and disruption for more than a year. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial condition or performance. If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience adverse effects, which may be material, on our ability to maintain or access capital and on our business, financial condition and results of operations.

Liquidity risks could affect operations and jeopardize our financial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our funding sources include federal funds purchased, securities sold under repurchase agreements, non-core deposits, and short- and long-term debt. We are also members of the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta, where we can obtain advances collateralized with eligible assets. We maintain a portfolio of securities that can be used as a secondary source of liquidity. There are other sources of liquidity available to us or Seacoast National should they be needed, including our ability to acquire additional non-core deposits, the issuance and sale of debt securities, and the issuance and sale of preferred or common securities in public or private transactions. Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Our liquidity, on a parent only basis, is adversely affected by our current inability to receive dividends from Seacoast National without prior regulatory approval, offset by approximately $39.2 million of cash and short-term investments currently held by us at December 31, 2008 due to receipt of TARP CPP. We anticipate that at least some of these funds will need to be invested in Seacoast National by March 31, 2009 to meet OCC total risk-based capital requirements. Our ability to borrow could also be impaired by factors that are not specific to us, such as further disruption in the financial markets

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or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems, losses of depositor, creditor and counterparty confidence and could lead to losses or defaults by us or by other institutions.

We could encounter difficulties as a result of our growth.

Our loans, deposits, fee businesses and employees have increased as a result of our organic growth and acquisitions. Our failure to successfully manage and support this growth with sufficient human resources, training and operational, financial and technology resources in challenging markets and economic conditions could have a material adverse effect on our operating results and financial condition. We may not be able to sustain or manage our growth or additional growth may be encountered due to adverse changes, consolidations and failures among our competitors.

We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, because we are unable to raise additional capital or otherwise, our financial condition, liquidity and results of operations would be adversely affected.

Both we and Seacoast National must meet regulatory capital requirements and maintain sufficient liquidity. In addition, we may need to raise additional capital to support our business or provide additional capital to absorb losses. Our ability to raise additional capital, when and if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry and market condition, and governmental activities, many of which are outside our control, and on our financial condition and performance. Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to meet these capital and other regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected. Our failure to remain “well capitalized” for bank regulatory purposes could affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common stock, and our ability to make acquisitions, and our business, results of operation and financial conditions, generally.

Sales of additional capital could dilute existing shareholders.

Issuances of our common stock or securities convertible into or exchangeable for our common stock could dilute the interests of our existing common shareholders or require shareholders to approve an increase in the number of shares of common stock we are authorized to issue and could increase the number of shares of common stock we are required to issue under the warrant we issued to the Treasury under the TARP CPP.

Weaknesses in the real estate markets, including the secondary market for residential mortgage loans have adversely affected us and may continue to adversely affect us.

The effects of ongoing mortgage market challenges, combined with the ongoing correction in residential real estate market prices and reduced levels of home sales, could result in further price reductions in single family home values, adversely affecting further the liquidity and value of collateral securing commercial loans for residential land acquisition, construction and development, as well as residential mortgage loans and residential property collateral securing loans that we hold, mortgage loan originations and gains on sale of mortgage loans. Declining real estate prices have caused higher delinquencies and losses on certain mortgage loans, generally, particularly second lien mortgages and home equity lines of credit. Significant ongoing

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disruptions in the secondary market for residential mortgage loans have limited the market for and liquidity of most residential mortgage loans other than conforming Fannie Mae and Freddie Mac loans. These trends could continue, notwithstanding various government programs to boost the residential mortgage markets and stabilize the housing markets. Continued declines in real estate values, home sales volumes and financial stress on borrowers as a result of job losses, interest rate resets on adjustable rate mortgage loans or other factors could have further adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods, which would adversely affect our financial condition, including capital and liquidity, or results of operations. In the event our allowance for loan losses is insufficient to cover such losses, our earnings, capital and liquidity could be adversely affected.

Our real estate portfolios are exposed to weakness in the Florida housing market and the overall state of the economy.

The declines in home prices in the Florida housing market, along with the reduced availability of certain types of mortgage credit, have resulted in increases in delinquencies and losses in our portfolios of home equity lines and loans, and commercial loans related to residential real estate acquisition, construction and development. Further declines in home prices coupled with an economic recession and associated rises in unemployment levels could drive losses beyond that which is provided for in the allowance for loan losses. In that event, our earnings, financial condition, including our capital and liquidity, could be adversely affected.

Commercial real estate (“CRE”) is cyclical and poses risks of possible loss due to concentration levels and similar risks of the asset, especially since we had 53.5% of our portfolio in CRE loans at year-end 2008 and 55.6% for 2007. The banking regulators continue to give CRE lending greater scrutiny, and require banks with higher levels of CRE loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as higher levels of allowances for possible losses and capital levels as a result of CRE lending growth and exposures. During 2008, we added $88.6 million of provisions for loan losses compared to $12.7 million in 2007 and $3.3 million in 2006, in part reflecting collateral evaluations in response to recent changes in the market value for residential real estate collateralizing land and acquisition and development loans. Sales of residential real estate and mortgage loan production fell in 2006, 2007 and 2008, adversely affecting loan demand, deposit growth, fee income from mortgage production and sale, and liquidity of certain of our collateral. Real estate activity and values in our market have declined in recent periods, as these conditions persisted.

Our cost of funds may increase as a result of general economic conditions, FDIC insurance assessments, interest rates and competitive pressures.

Our cost of funds may increase as a result of general economic conditions, FDIC insurance assessments, interest rates and competitive pressures. We have traditionally obtained funds principally through local deposits and we have a base of lower cost transaction deposits. Our deposits also increased due to acquisitions in 2005 and 2006. Generally, we believe local deposits are a cheaper and more stable source of funds than other borrowings because interest rates paid for local deposits are typically lower than interest rates charged for borrowings from other institutional lenders and reflect a mix of transaction and time deposits, whereas brokered deposits typically are higher cost time deposits. Our costs of funds and our profitability and liquidity are likely to be adversely affected to the extent we have to rely upon higher cost borrowings from other institutional lenders or brokers to fund loan demand or liquidity needs, and changes in our deposit mix and growth could adversely affect our profitability and the ability to expand our loan portfolio.

Our profitability and liquidity may be affected by changes in interest rates and economic conditions.

Our profitability depends upon net interest income, which is the difference between interest earned on assets, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Net interest income will be adversely affected if market interest rates change such that the interest we pay on deposits and borrowings and our FDIC deposit insurance assessments increase faster than the interest earned on loans and investments. Interest rates, and consequently our results of operations, are affected by general economic conditions (domestic and foreign) and fiscal and monetary policies. Monetary and fiscal policies may

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materially affect the level and direction of interest rates. From June 2004 to mid-2006, the Federal Reserve raised the federal funds rate from 1.0% to 5.25%. Since then, beginning in September 2007, the Federal Reserve decreased the federal funds rates by 100 basis points to 4.25% over the remainder of 2007, and has since reduced the target federal funds rate by an additional 400 basis points to zero to 25 basis points in December 2008. Decreases in interest rates generally increase the market values of fixed-rate, interest-bearing investments and loans held, and increase the values of loan sales and mortgage loan activities. However, the production of mortgages and other loans and the value of collateral securing our loans, are dependent on demand within the markets we serve, as well as interest rates. The levels of sales, as well as the values of real estate in our markets have declined. Declining rates reflect efforts by the Federal Reserve to stimulate the economy and may or may not be effective in the short term, and may affect results of operation and financial condition, liquidity and earnings.

Because of our participation in the Treasury’s CPP, we are subject to several restrictions, including restrictions on our ability to declare or pay dividends and repurchase our shares as well as restrictions on our executive compensation.

On December 19, 2008, pursuant to the Purchase Agreement, we issued to the Treasury $50,000,000 of our Series A Preferred Stock and a Warrant to purchase 1,179,245 shares of our common stock. The Purchase Agreement limits our ability to declare or pay dividends on any of our shares. Specifically, we are unable to declare dividend payments on common, junior preferred or pari passu preferred shares if we have not fully paid the scheduled dividends on the Series A Preferred Stock. Further, without the Treasury’s prior approval, we are not permitted to increase dividends on our common stock above $0.01, the amount of the last quarterly cash dividend per share declared prior to December 19, 2008 until December 19, 2011, the third anniversary of the investment, unless the Series A Preferred Stock has been redeemed or transferred by the Treasury in full. In addition, our ability to repurchase shares of our, commons stock is restricted. The Treasury’s consent generally is required for us to make any stock repurchases until December 19, 2011, unless all the Series A Preferred Stock has been redeemed or transferred by Treasury to a third party. Further, common, junior preferred or pari passu preferred shares may not be repurchased if we have not fully paid all dividends on the Series A Preferred Stock. We cannot use the proceeds from the sale of the Series A Preferred Stock or the Warrant to redeem any of our trust preferred securities.

In the event that we fail to pay dividends on the Series A Preferred Stock for an aggregate of six quarterly dividend periods or more (whether or not consecutive), the authorized number of directors then constituting our board of directors will be increased by two. Holders of the Series A Preferred Stock, together with the holders of shares of outstanding parity stock, if any, with like voting rights, voting as a single class, will be entitled to elect the two additional members of our board of directors at the next annual meeting (or at a special meeting called for the purpose of electing such directors prior to the next annual meeting) and at each subsequent annual meeting until all accrued and unpaid dividends for all past dividend periods have been paid in full.

Holders of the Series A Preferred Stock have certain voting rights that may adversely affect our common shareholders, and the holders of shares of our Series A Preferred Stock may have different interests from, and vote their shares in a manner deemed adversely to our common shareholders.

Except as otherwise required by law and in connection with the election of directors to our board of directors in the event that we fail to pay dividends on the Series A Preferred Stock for an aggregate of at least six quarterly dividend periods (whether or not consecutive), holders of the Series A Preferred Stock have limited voting rights. So long as shares of the Series A Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required by law or our amended and restated charter, the vote or consent of holders owning at least 662/3% of the shares of Series A Preferred Stock outstanding is required for

•  any authorization or issuance of shares ranking senior to the Series A Preferred Stock;

•  any amendment to the rights of the Series A Preferred Stock so as to adversely affect the rights, preferences, privileges or voting power of the Series A Preferred Stock; or

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•  consummation of any merger, share exchange or similar transaction unless the shares of Series A Preferred Stock remain outstanding, or if we are not the surviving entity in such transaction, are converted into or exchanged for preference securities of the surviving entity and the shares of Series A Preferred Stock remaining outstanding or such preference securities have such rights, preferences, privileges and voting power as are not materially less favorable to the holders than the rights, preferences, privileges and voting power of the shares of Series A Preferred Stock. Holders of Series A Preferred Stock could black the foregoing transitions, even where considered desirable by, or in the best interests of, holders of our common stock.

The holders of Series A Preferred Stock, including the Treasury, may have different interests from the holders of our common stock, and could vote to disapprove transactions that are favored by, or are in the best interests of, our common shareholders.

The TARP CPP and the ARRA impose certain executive compensation and corporate governance requirements that may adversely affect us and our business.

The Purchase Agreement required us to adopt the Treasury’s standards for executive compensation and corporate governance while the Treasury holds the equity issued pursuant to the Purchase Agreement, including the common stock which may be issued pursuant to the Warrant (“TARP Assistance Period”). These standards generally apply to our chief executive officer, chief financial officer and the three next most highly compensated senior executive officers. The standards include:

•  ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;

•  required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate;

•  prohibition on making golden parachute payments to senior executives; and

•  agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

In particular, the change to the deductibility limit on executive compensation may increase the overall cost of our compensation programs in future periods.

The ARRA imposed further limitations on compensation during the TARP Assistance Period including:

•  a prohibition on the making any golden parachute payment to a senior executive officer or any of its next five most highly compensated employees;

•  a prohibition on any compensation plan that would encourage manipulation of the reported earnings to enhance the compensation of any of its employees; and

•  a prohibition of the five highest paid executives from receiving or accruing any bonus, retention award, or incentive compensation (“Bonus”) unless the Bonus (a) does not fully vest during the TARP Assistance Period; (b) has a value not greater than one-third of the total amount of annual compensation of the employee receiving the stock; and (c) is subject to such other terms and conditions as the Treasury Secretary may determine are in the public interest.

Since the Warrant has a 10 year term, we could potentially be subject to the executive compensation and corporate governance restrictions for 10 years. The prohibition may expand to other employees based on increases in the aggregate value of financial assistance that we receive in the future. For example, if we receive at least $250 million but less than $500 million in TARP financial assistance, the senior executive officers and at least the next 10 most highly compensated employees will be prohibited from receiving or accruing Bonus.

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These provisions and any rules issued by the Treasury could adversely affect our ability to attract and retain management capable and motivated sufficiently to manage and operate our business through difficult economic and market conditions.

TARP lending goals may not be attainable.

Congress and the bank regulators are encouraging recipients of TARP capital to use such capital to make loans and it may not be possible to safely, soundly and profitably make sufficient loans to creditworthy persons in the current economy to satisfy such goals. Congressional demands for additional lending by TARP capital recipients, and regulatory demands for demonstrating and reporting such lending are increasing. On November 12, 2008, the bank regulatory agencies issued a statement encouraging banks to, among other things, “lend prudently and responsibly to creditworthy borrowers” and to “work with borrowers to preserve homeownership and avoid preventable foreclosures.” We continue to lend and have expanded our mortgage loan originations. The future demands for additional lending are unclear and uncertain, and we could be forced to make loans that involve risks or terms that we would not otherwise find acceptable or in our shareholders’ best interest. Such loans could adversely affect our results of operation and financial condition, and may be in conflict with bank regulations and requirements as to liquidity and capital. The profitability of funding such loans using deposits may be adversely affect by increased FDIC insurance premiums.

Changes in future rules applicable to banks generally or to TARP recipients could adversely affect our operation and our financial condition.

The ARRA contains compensation and governance requirements that were not agreed to when we sold the Series A Preferred Stock and Warrant to the Treasury pursuant to the TARP CPP, but which are to be applied to us and all other TARP recipients based on Treasury rules that have not been proposed as of February 25, 2009. The scope and effects of future changes including possible retroactive charges, if any, on TARP recipients including us, cannot be predicted. Any redemption of our Series A Preferred Stock to avoid these restrictions would require prior Federal Reserve approval, and currently we would need additional Tier 1 equity capital to maintain our capital adequacy.

Our future success is dependent on our ability to compete effectively in highly competitive markets.

We operate in the highly competitive markets of Martin, St. Lucie, Brevard, Indian River, Palm Beach and Broward Counties in southeastern Florida, the Orlando, Florida metropolitan statistical area, as well as in more rural competitive counties in the Lake Okeechobee, Florida region. Our future growth and success will depend on our ability to compete effectively in these markets. We compete for loans, deposits and other financial services in geographic markets with other local, regional and national commercial banks, thrifts, credit unions, mortgage lenders, and securities and insurance brokerage firms. Many of our competitors offer products and services different from us, and have substantially greater resources, name recognition and market presence than we do, which benefits them in attracting business. In addition, larger competitors may be able to price loans and deposits more aggressively than we can, and have broader customer and geographic bases to draw upon.

We operate in a heavily regulated environment.

We and our subsidiaries are regulated by several regulators, including the Federal Reserve, the OCC, the SEC, the FDIC and FINRA, and since December 2008, the Treasury. Our success is affected by state and federal regulations affecting banks and bank holding companies, and the securities markets and securities and insurance regulators. Banking regulations are primarily intended to protect depositors, not shareholders. The financial services industry also is subject to frequent legislative and regulatory changes and proposed changes, the effects of which cannot be predicted. Federal bank regulatory agencies and the Treasury, as well as the Congress and the President, are evaluating the regulation of banks, other financial services providers and the financial markets and such changes, if any, could require us to maintain more capital, liquidity and risk management which could adversely affect our growth, profitability and financial condition.

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We are subject to internal control reporting requirements that increase compliance costs and failure to comply timely could adversely affect our reputation and the value of our securities.

We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board and Nasdaq. In particular, we are required to include management and independent auditor reports on internal controls as part of our annual report on Form 10-K pursuant to Section 404 of the Sarbanes-Oxley Act. We expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to comply with these internal control rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, and the value of our securities.

Technological changes affect our business, and we may have fewer resources than many competitors to invest in technological improvements.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to serving clients better, the effective use of technology may increase efficiency and may enable financial institutions to reduce costs. Our future success will depend, in part, upon our ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in operations. We may need to make significant additional capital investments in technology in the future, and we may not be able to effectively implement new technology-driven products and services. Many competitors have substantially greater resources to invest in technological improvements.

The anti-takeover provisions in our articles of incorporation and under Florida law may make it more difficult for takeover attempts that have not been approved by our board of directors.

Florida law and our articles of incorporation include anti-takeover provisions, such as provisions that encourage persons seeking to acquire control of us to consult with our board, and which enable the board to negotiate and give consideration on behalf of us and our shareholders and other constituencies to the merits of any offer made. Such provisions, as well as supermajority voting and quorum requirements and a staggered board of directors, may make any takeover attempts and other acquisitions of interests in us that have not been approved by our board of directors more difficult and more expensive. These provisions may discourage possible business combinations that a majority of our shareholders may believe to be desirable and beneficial.

Hurricanes or other adverse weather events would negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations.

Our market areas in Florida are susceptible to hurricanes and tropical storms and related flooding and wind damage. Such weather events can disrupt operations, result in damage to properties and negatively affect the local economies in the markets where they operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes will affect its operations or the economies in our current or future market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in the delinquencies, foreclosures or loan losses. Our business or results of operations may be adversely affected by these and other negative effects of future hurricanes or tropical storms, including flooding and wind damage. Many of our customers have incurred significantly higher property and casualty insurance premiums on their properties located in our markets, which may adversely affect real estate sales and values in our markets.

Attractive acquisition opportunities may not be available to us in the future.

While we seek continued organic growth, we may consider the acquisition of other businesses. We expect that other banking and financial companies, many of which have significantly greater resources, will compete with us to acquire financial services businesses. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we

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fail to receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best interests. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Any acquisition could be dilutive to our earnings and shareholders’ equity per share of our common stock.

Future acquisitions and expansion activities may disrupt our business, dilute shareholder value and adversely affect our operating results.

We regularly evaluate potential acquisitions and expansion opportunities. To the extent that we grow through acquisitions, we cannot assure you that we will be able to adequately or profitably manage this growth. Acquiring other banks, branches or businesses, as well as other geographic and product expansion activities, involve various risks including:

•  risks of unknown or contingent liabilities;

•  unanticipated costs and delays;

•  risks that acquired new businesses do not perform consistent with our growth and profitability expectations;

•  risks of entering new markets or product areas where we have limited experience;

•  risks that growth will strain our infrastructure, staff, internal controls and management, which may require additional personnel, time and expenditures;

•  exposure to potential asset quality issues with acquired institutions;

•  difficulties, expenses and delays of integrating the operations and personnel of acquired institutions, and start-up delays and costs of other expansion activities;

•  potential disruptions to our business;

•  possible loss of key employees and customers of acquired institutions;

•  potential short-term decreases in profitability; and

•  diversion of our management’s time and attention from our existing operations and business.

The amount of the deferred tax asset that is considered realizable could be reduced further from time to time if estimates of future taxable income from our operations and tax planning strategies during the carryforward period are lower than forecasted due to further deterioration in market conditions or other circumstances.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

We and Seacoast National’s main office occupies approximately 62,000 square feet of a 68,000 square foot building in Stuart, Florida. This building, together with an adjacent 10-lane drive-through banking facility and an additional 27,000 square foot office building, are situated on approximately eight acres of land in the center of Stuart that is zoned for commercial use. The building and land are owned by Seacoast National, which leases out portions of the building not utilized by our company and Seacoast National to unaffiliated third parties.

Adjacent to the main office, Seacoast National leases approximately 21,400 square feet of office space to house operational departments, consisting primarily of information systems and retail support. Seacoast National owns its equipment, which is used for servicing bank deposits and loan accounts as well as on-line banking services, and providing tellers and other customer service personnel with access to customers’ records.

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In addition, Seacoast National acquired Big Lake’s operations center as a result of the acquisition of Big Lake on April 1, 2006. The operations center is situated on 3.25 acres in a 4,939 square foot building in Okeechobee, Florida, all of which are owned by Seacoast National. Our PGA Blvd. branch is utilized as a disaster recovery site should natural disasters or other events preclude use of Seacoast National’s primary operations center.

In February 2000, Seacoast National opened a lending office in Ft. Lauderdale, Florida for its Seacoast Marine Finance Division. In November 2002, additional office space was acquired for the Seacoast Marine Finance Division in Alameda, California (430 square feet of leased space), and Newport Beach, California (1,200 square feet of leased space). Since January 2005, the Ft. Lauderdale, Florida office has been in a 2,009 square feet leased facility. The furniture and equipment at these locations is owned by Seacoast National.

In June 2004, Seacoast National also opened a loan production office in Melbourne, Florida. Located in a three story waterfront office building, this office occupies 1,533 square feet of leased space on the third floor. This office was closed in February 2007 coinciding with the opening of our Viera branch location in Brevard County. Personnel at the loan production office now occupy space in the new branch office.

As of December 31, 2008, the net carrying value of branch offices of Seacoast National (excluding the main office) was approximately $32.6 million. Seacoast National’s branch offices are described as follows:

Jensen Beach, opened in 1977, is a free-standing facility located in the commercial district of a residential community contiguous to Stuart. The 1,920 square foot bank building and land are owned by Seacoast National. Improvements include three drive-in teller lanes and one drive-up ATM, as well as a parking lot and landscaping.

East Ocean Boulevard, was originally opened in 1978 and relocated in 1995. This office is located on the main thoroughfare between downtown Stuart and Hutchinson Island’s beachfront residential developments. This branch is housed in a four-story office condominium. The 2,300 square foot branch area on the first floor operates as a full service branch including five drive-in lanes and a drive-up ATM. The remaining 2,300 square feet on the ground floor was sold in June 1996, the third floor was sold in December 1995, and the second floor was sold in December 1998.

Cove Road, opened in late 1983, is conveniently located close to housing developments in the residential areas south of Stuart known as Port Salerno and Hobe Sound. South Branch Building, Inc., a subsidiary of Seacoast National, is a general partner in a partnership that entered into a long-term land lease for approximately four acres of property on which it constructed a 7,500 square foot building. Seacoast National leases the building and utilizes 3,450 square feet of the available space. Remaining space is sublet by Seacoast National to other business tenants. Seacoast National has improved the premises with three drive-in lanes, bank equipment, and furniture and fixtures, all of which are owned by Seacoast National. A drive-up ATM was added in early 1997.

Hutchinson Island, opened on December 31, 1984, is in a shopping center located on a coastal barrier island, close to numerous oceanfront condominium developments. In 1993, the branch was expanded from 2,800 square feet to 4,000 square feet and is under a long-term lease to Seacoast National. Seacoast National has improved the premises with bank equipment, a walk-up ATM and three drive-in lanes, all owned by Seacoast National.

Rivergate, opened October 28, 1985, originally occupied 1,700 square feet of leased space in the Rivergate Shopping Center, Port St. Lucie, Florida. Seacoast National moved the branch to larger facilities in the shopping center in April 1999. Furniture and bank equipment located in the prior facilities were moved to the new facility, which occupies approximately 3,400 square feet, with three drive-in lanes and a drive-up ATM. This office closed in the second quarter of 2008, simultaneous with the opening of Seacoast National’s new Westmoreland branch office (across the street from Rivergate). The Westmoreland office is situated in a stand alone building owned by Seacoast National with 4,468 square feet of space (2,821 square feet to be occupied by the branch, the remainder to be leased to tenants) on leased land, with three drive-in lanes, a drive-up ATM, and furniture and equipment, all owned by Seacoast

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National. Located on the corner of a heavily traversed thoroughfare, the new location is more prominent than the existing store front location in the shopping plaza.

Wedgewood Commons, opened in April 1988, is located on an out-parcel under long term ground lease in the Wedgewood Commons Shopping Center, south of Stuart on U.S. Highway 1. The property consists of a 2,800 square foot building that houses four drive-in lanes, a walk-up ATM and various bank equipment, all of which are owned by Seacoast National. This office closed simultaneously in January 2009, with its relocation to a new stand alone building on a leased out parcel in the same shopping center, but with a greater presence on the corner of U.S. 1 and offering better ingress and egress. The new building owned by Seacoast National contains 5,477 square feet of space (2,836 square feet to be occupied by the branch, the remainder to be leased to tenants), with four drive-in lanes, a drive-up ATM, and furniture and equipment, all of which are owned by Seacoast National.

Bayshore, opened in September 1990, occupies 3,520 square feet of a 50,000 square foot shopping center located in Port St. Lucie. Seacoast National has leased the premises under a long-term lease agreement and has made improvements to the premises, including the addition of three drive-in lanes and a walk-up ATM, all of which are owned by Seacoast National.

Hobe Sound, acquired in December 1991 from the Resolution Trust Corporation, is a two-story facility containing 8,000 square feet and is centrally located in Hobe Sound. Of 2,800 square feet on the second floor, 1,225 square feet is utilized by local community organizations. Improvements include two drive-in teller lanes, a drive-up ATM, and equipment and furniture, all of which are owned by Seacoast National.

Fort Pierce, acquired in December 1991, is a 2,895 square foot facility owned by Seacoast National in the heart of Fort Pierce that has three drive-in lanes and a drive-up ATM. Equipment and furniture at this location are all owned by Seacoast National. In August 2007, Seacoast National sold this building, realizing a gain of $280,000. Under the terms of the sales agreement, Seacoast National obtained an accommodation whereby it could continue to occupy the location until construction of its new Ft. Pierce location was completed. The new location on U.S. 1 is situated on leased land with 5,477 square feet of space (2,836 square feet to be occupied by the branch, the remainder to be leased to tenants), with three drive-in lanes, a drive-up ATM, and furniture and equipment, all of which are owned by Seacoast National. The new location opened in October 2008.

Martin Downs, acquired in February 1992, is a 3,960 square foot bank building owned by Seacoast National located at a high traffic intersection in Palm City, an emerging commercial and residential community west of Stuart. Improvements include three drive-in teller lanes, a drive-up ATM, equipment and furniture.

Tiffany, acquired in May 1992 and owned by Seacoast National, is a two-story facility containing 8,250 square feet and is located on a corner of U.S. Highway 1 in Port St. Lucie offering excellent exposure in one of the fastest growing residential areas in the region. Seacoast National uses the second story space to house brokerage and loan origination personnel, a training facility and conference area. Three drive-in teller lanes, a walk-up ATM, equipment and furniture are utilized and owned by Seacoast National.

Vero Beach, acquired in February 1993 and owned by Seacoast National, is a 3,300 square foot bank building located in Vero Beach on U.S. Highway 1 at the intersection with 12th Street. Seacoast National holds a long-term ground lease on the property. Improvements include three drive-in teller lanes, a walk-up ATM, equipment and furniture, all of which are owned by Seacoast National.

Beachland, opened in February 1993, consists of 4,150 square feet of leased space located in a three-story commercial building on Beachland Boulevard, the main beachfront thoroughfare in Vero Beach, Florida. This facility has 2 drive-in teller lanes, a drive-up ATM, and furniture and equipment, all owned by Seacoast National. Building improvement at this office began in November 2008, with branch personnel moving to a separate leased facility in close proximity on Cardinal Drive while construction occurs.

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Sandhill Cove, opened in September 1993, is a leased facility in an upscale life-care retirement community. The 135 square foot office is located within the community facilities on a 36-acre development in Palm City, Florida. This community contains approximately 168 private residences.

St. Lucie West, opened in November 1994 in a different location, was moved to the Renar Centre, located at 1100 SW St. Lucie West Blvd., Port St. Lucie, Florida, in June 1997, where Seacoast National leases 4,320 square feet on the first floor. The facility includes three drive-in teller lanes, a drive-up ATM, and furniture and equipment.

Mariner Square, acquired in April 1995, was a 3,600 square foot leased space located on the ground floor of a three-story office building located on U.S. Highway 1 between Hobe Sound and Port Salerno. Approximately 700 square feet of the space is sublet to a third party. The space occupied by Seacoast National had been improved to be a full service branch with two drive-in lanes, one serving as a drive-up ATM lane as well as a drive-in teller lane, all owned by Seacoast National. Seacoast National closed this location in of March 2008.

Sebastian, opened in May 1996, is located within a 174,000 square foot Wal-Mart Superstore on U.S. Highway 1 in northern Indian River County. The leased space occupied by Seacoast National totals 865 square feet. The facility has a walk-up ATM, owned by Seacoast National.

South Vero Square, opened in May 1997 in a 3,150 square foot building owned by Seacoast National on South U.S. Highway 1 in Vero Beach. The facility includes three drive-in teller lanes, a drive-up ATM, and furniture and equipment, all owned by Seacoast National.

Oak Point, opened in June 1997, occupies 12,000 square feet of leased space on the first and second floors of a 19,700 square foot three-story building in Indian River County. The office is in close proximity to Indian River Memorial Hospital and the peripheral medical community adjacent to the hospital. The facility includes three drive-in teller lanes, a walk-up ATM, and furniture and equipment, all owned by Seacoast National. Seacoast National sublets 2,270 square feet of space on the second floor to a third party.

Route 60 Vero, opened in July 1997. Similar to the Sebastian office, this facility is housed in a Wal-Mart Superstore in western Vero Beach in Indian River County. The branch occupies 750 square feet of leased space and includes a walk-up ATM.

Sebastian West, opened in March 1998 in a 3,150 square foot building owned by Seacoast National. It is located at the intersection of Fellsmere Road and Roseland Road in Sebastian. The facility includes three drive-in teller lanes, a drive-up ATM, and furniture and equipment, all owned by Seacoast National.

Jensen West, opened in July 2000, is located on an out parcel under a long-term ground lease on U.S. Highway 1 in northern Martin County. The facility consists of a 3,930 square foot building, with four drive-up lanes, a drive-up ATM and furniture and equipment, all of which are owned by Seacoast National and are located on the leased property. This office replaced Seacoast National’s U.S. Highway 1 and Port St. Lucie Boulevard office, one-half mile north of this location, which originally opened in June 1997.

Ft. Pierce Wal-Mart, opened in June 2001, was another Wal-Mart Superstore location. The branch occupied 540 square feet of leased space and included a walk-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National. This location was closed at the end of February 2008.

Port St. Lucie Wal-Mart, opened in October 2002, occupied 695 square feet of leased space in a Wal-Mart Superstore on U.S. Highway 1. The branch included a walk-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National. This location was closed at the end of December 2007.

Jupiter, located on U.S. Highway 1 in Jupiter, Florida, this office opened as a loan production office in August 2002 and converted to a full-service branch during 2003. Commercial and residential lending personnel as well as certain executive offices were maintained at this location until May 2006 when our

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PGA Blvd. location opened. In May 2006 this office was closed. Seacoast National’s obligation for 3,718 square feet of leased space under lease expired at the end of July 2007. No ATM or night depository existed for this location and all furniture and equipment at the branch has been removed.

Tequesta, opened in January 2003, is a 3,500 square foot building acquired and owned by Seacoast National located on U.S. Highway 1 on property subject to a long term ground lease. The Tequesta location has two drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Jupiter Indiantown, opened in December 2004, is a free standing office located on Indiantown Road, a prime thoroughfare in Jupiter, Florida. Seacoast National owns the building and leases the land. The building is 2,881 square feet and includes three drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Juno Beach was acquired during 2004. Seacoast National’s Jupiter Bluff’s branch was relocated to this facility at the end of December 2004, following renovation of the building. The building is 2,891 square feet, located on U.S. Highway 1 in Juno Beach, and includes three drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National. We closed this location at the end of March 2008.

60 West was acquired in January 2005 from another financial institution. Seacoast National owns the land and the 2,500 square foot building at this location on Route 60 in Vero Beach. The office has three drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Northlake, is a 2,881 square foot location built on land owned by Seacoast National and opened in February 2005. Located on a bustling east / west thoroughfare in northern Palm Beach County, the facility includes 3 drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Downtown Orlando, acquired in April 2005, is a 6,752 square foot leased facility occupying the ground floor of a six floor 62,100 square foot commercial office building on Orange Avenue in the heart of downtown Orlando. The location includes a walk-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Maitland/Winter Park, acquired in April 2005, occupies 4,536 square feet of leased space on the first floor of a three-story 32,975 square foot office building on Orlando Avenue. The location includes 3 drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Longwood, acquired in April 2005, occupies 4,596 square feet of leased space on the first floor of a three-story 35,849 square foot office building on North State Road 434. The location includes 3 drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

PGA Blvd., a signature Palm Beach County headquarters office opened in May 2006 in Palm Beach Gardens in northern Palm Beach County. Located across the street from the Gardens Mall on PGA Blvd., this leased office is in a high-rise office building. Seacoast National occupies a total of 13,454 square feet: 5,600 square feet on the first floor and 7,854 square feet on the second floor. The office has three drive-up lanes, a drive-up ATM and night depository.

Offices acquired from Big Lake include branches in eight locations in central Florida. Some locations are leased, others owned. The eight locations are as follows:

South Parrott, acquired in April 2006, located in Okeechobee County, this office is comprised of an 8,232 square foot two-story building on approximately 3 acres of land, all owned by Seacoast National. The office was constructed in 1986 and has eight drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

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North Parrott, acquired in April 2006, located in Okeechobee County, is a 3,920 square foot one-story building built in 2004 on 2 acres of land. The office and land are owned by Seacoast National. The office has 4 drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Arcadia, acquired in April 2006, located in DeSoto County, is a 1,681 square foot one-story branch on approximately 1.5 acres, all owned by Seacoast National. Built in 1984, the office has 3 drive-up lanes, a walk-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National. An expansion of this office adding 1,575 square feet was completed in April 2008.

Moore Haven, acquired in April 2006, located in Glades County, is a 640 square foot office. The office is under a lease, the initial term of which expired in 2003 and now is renewed annually in November. The office is a storefront location, with a walk-up ATM, and furniture and equipment, all owned by Seacoast National.

Wauchula, acquired in April 2006, located in Hardee County, is a 4,278 square foot office. It is leased under a 10-year lease that expires in 2008, with a renewal option for an additional five years to 2013. The office has 2 drive-up lanes, a walk-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Clewiston, acquired in April 2006, located in Hendry County, consists of a 5,661 square foot building that is 32 years old on 2 plus acres. The land and building are owned. It has 4 drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

LaBelle, acquired in April 2006, located in Hendry County, is a one-story building consisting of 2,361 square feet on approximately one acre of land. The land and building are owned by Seacoast National. The building is 21 years old. The office has three drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Lake Placid, acquired in April 2006, located in Highlands County, is a 2,125 square foot building. The building and land (approximately one-half acre) are owned by Seacoast National. It has a drive-up window, a walk-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

Viera-The Avenues, which opened in February 2007, is Seacoast National’s first branch location in Brevard County, located in the Viera area. The branch is 5,999 square feet in size, with 3 drive-up lanes, a drive-up ATM, night depository, and furniture and equipment, all owned by Seacoast National. This location is under a ground lease.

Middle River was opened in October 2007 in Ft. Lauderdale, Florida on U.S. 1. The location occupies 2,350 square feet of leased space on the first floor of a brand new one-story building. The location has a night depository, and furniture and equipment, all owned by Seacoast National. The location replaces 1,089 square feet of space acquired on a short term lease in early 2007 in Boca Raton, Florida, temporarily housing a new loan production office. All personnel are now located at the new full service branch location at the Middle River site.

Two de novo offices were opened in 2008:

Murrell Road, located in Brevard County, is Seacoast National’s second office in this market. The branch is a two-story office owned by Seacoast National with 9,041 square feet, of which 4,307 square feet on the first floor houses banking and loan offices and 4,264 square feet on the second floor is leased to outside parties. The branch has 3 drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National. This location is under a ground lease and opened in April 2008.

Gatlin Boulevard, located in St. Lucie County, opened in March 2008 on an out parcel directly in front of a Sam’s Club and adjacent to a Wal-Mart, both presently open. The office is two stories, with 2,782 square feet on the first floor occupied by Seacoast National and 2,518 square feet on the second

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floor available for leasing to outside parties. Seacoast National owns the land and building. The branch has 4 drive-up lanes, a drive-up ATM, a night depository, and furniture and equipment, all owned by Seacoast National.

For additional information regarding our properties, please refer to Notes G and K of the Notes to Consolidated Financial Statements in Our 2008 Annual Report, certain portions of which are incorporated herein by reference pursuant to Part II, Item 8 of this report.

No new and planned offices are projected to open over the remainder of 2009.

Item 3.   Legal Proceedings

We and our subsidiaries are subject, in the ordinary course, to litigation incident to the businesses in which we are engaged. Management presently believes that none of the legal proceedings to which we are a party are likely to have a material adverse effect on our consolidated financial position, operating results or cash flows, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation.

We have incurred no penalties for failing to include on our tax returns any information required to be disclosed under Section 6011 of the Internal Revenue Code of 1986, as amended (the “Code”) with respect to a “reportable transaction” under the Code and that is required to be reported under Code Section 6707 A (e).

Item 4.   Submission of Matters to a Vote of Security Holders

None.

Part II

Item 5.   Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Holders of our common stock are entitled to one vote per share on all matters presented to shareholders as provided in our Amended and Restated Articles of Incorporation.

Our common stock is traded under the symbol “SBCF” on the Nasdaq Global Select Market which is a national securities exchange (“Nasdaq”). As of February 20, 2009, there were           shares of our common stock outstanding, held by approximately           record holders.

The table below sets forth the high and low sale prices per share of our common stock on Nasdaq and the dividends paid per share of our common stock for the indicated periods.

	Sale Price Per Share of				Quarterly Dividends
	Seacoast Common Stock				Declared Per Share of
	High		Low		Seacoast Common Stock
2007
First Quarter	$	24.650	$	22.220	$	0.16
Second Quarter		25.360		20.270		0.16
Third Quarter		22.300		15.620		0.16
Fourth Quarter		19.570		10.280		0.16
2008
First Quarter	$	12.460	$	7.670	$	0.16
Second Quarter		11.200		7.760		0.16
Third Quarter		12.570		7.310		0.01
Fourth Quarter		11.000		4.370		0.01

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Dividends from Seacoast National historically have been our primary source of funds to pay dividends on our common stock. Under the National Bank Act, national banks may in any calendar year, without the approval of the OCC, pay dividends to the extent of net profits for that year, plus retained net profits for the preceding two years (less any required transfers to surplus). The need to maintain adequate capital in Seacoast National also limits dividends that may be paid to us. Beginning in the third quarter of 2008, we reduced our dividend per share of our common stock to $0.01. As of December 31, 2008, Seacoast National cannot pay us any dividends without prior OCC approval, and in all events must maintain appropriate capital that meets regulatory requirements applicable to us. Additional information regarding restrictions on the ability of Seacoast National to pay dividends to us is contained in Note C of the “Notes to Consolidated Financial Statements” in our 2008 Annual Report, portions of which are incorporated by reference herein, including in Part II, Item 8 of this report. See “Supervision and Regulation” contained in Part I, Item 1 of this report.

The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends for current earnings, and have the general authority to limit the dividends paid by insured national banks and bank holding companies, respectively, if such payment may be deemed to constitute an unsafe or unsound practice. If, in the particular circumstances, either of these federal regulators determine that the payment of dividends would constitute an unsafe or unsound banking practice, either the OCC or the Federal Reserve may, among other things, issue a cease and desist order prohibiting the payment of dividends by the Seacoast National or us, respectively. As a result of our participation in the TARP CPP program, additional restrictions have been imposed on our ability to declare or increase dividends on shares of our common stock. See “Supervision and Regulation” contained in Part I, Item 1 of this report.

Outstanding Warrants

Pursuant to the Purchase Agreement between us and the Treasury on December 19, 2008, we sold the Warrant to acquire 1,179,245 shares of our common stock to the U.S. Treasury and the exercise price of the Warrant is $6.36, subject to adjustments under various anti-dilution provisions. The Warrant will expire on December 19, 2018.

Securities Authorized for Issuance Under Equity Compensation Plans

See the information included under Part III, Item 12, which is incorporated in response to this item by reference.

Performance Graph

See the information referred to as “Performance Graph”, included under Part III, Item 11, which is incorporated in response to this item by reference.

Recent Sales of Unregistered Securities

During 2008, we did not issue or sell any of our securities in transactions not registered under the Securities Act of 1933, as amended except for shares of Series A Preferred Stock and the Warrant to purchase shares of our common stock sold to the Treasury as a result of our participation in the TARP CPP disclosed in our Current Report on Form 8-K, dated December 23, 2008. We subsequently filed a Form S-3, which was declared effective on January 30, 2009 to register the resale of those securities.

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Issuer Purchases of Equity Securities

Our board of directors authorized a plan to repurchase up to 825,000 shares of our common stock on September 18, 2001. The following table sets forth the shares of our common stock repurchased by us during the fourth quarter of 2008.

							Maximum
					Total Number of		Number of
					Shares Purchased as		Shares that May
					Part of Publicly		Yet Be Purchased
	Total Number of		Average Price		Announced Plans or		Under the Plans
Period	Shares Purchased		Paid per Share		Programs		or Programs
10/1/08 to 10/31/08		0	$	0		664,852		160,148
11/1/08 to 11/30/08		1,112	$	6.12		665,964		159,036
12/1/08 to 12/31/08		835	$	7.41		666,799		158,201
Total		1,947	$	6.67		666,799		158,201

Item 6.   Selected Financial Data

Selected financial data of the Company is set forth under the caption “Financial Highlights” in the 2008 Annual Report and is incorporated herein by reference.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is set forth under the caption “Financial Review — 2008 Management’s Discussion and Analysis” in the 2008 Annual Report and is incorporated herein by reference.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

The narrative under the heading of “Market Risk” in the 2008 Annual Report is incorporated herein by reference. Table 19, “Interest Rate Sensitivity Analysis”, the narrative under the heading of “Securities”, and the narrative under the heading of “Interest Rate Sensitivity” in the 2008 Annual Report are incorporated herein by reference. The information regarding securities owned by us set forth in Table 15, “Securities Held for Sale” and “Securities Held for Investment,” in the 2008 Annual Report is incorporated herein by reference.

Risk Management Derivative Financial Instruments

	December 31, 2008
	Notional		Unrealized		Unrealized				Ineffec-		Maturity In
	Amount		Gains		Losses		Equity		tiveness		Years
	(Dollars in thousands)
LIABILITY HEDGES
Fair value hedges
Interest rate swaps — receive fixed	$	15,000	$	302	$	—	$	—	$	—		0.87
Total	$	15,000	$	302	$	—	$	—	$	—		0.87

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Risk Management Derivative Financial Instruments — Expected Maturities

	December 31, 2008
	1 Year			1 — 2		2 — 5		Over 5
	or Less			Years		Years		Years		Total
	(Dollars in thousands)
FAIR VALUE LIABILITY HEDGES
Notional Amount — Swaps Receive Fixed	$	15,000			—		—		—	$	15,000
Weighted average receive rate		6.10	%		—		—		—		6.10	%
Weighted average pay rate		5.31	%		—		—		—		5.31	%
Unrealized gain	$	302			—		—		—	$	302

Item 8.   Financial Statements and Supplementary Data

The report of KPMG LLP, an independent registered public accounting firm, and the Consolidated Financial Statements are included in the 2008 Annual Report and are incorporated herein by reference. “Selected Quarterly Information — Consolidated Quarterly Average Balances, Yields & Rates” and “Quarterly Consolidated Income Statements” are included in the 2008 Annual Report and are incorporated herein by reference.

Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.   Controls and Procedures

Disclosure Controls and Procedures.  We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, as defined in SEC Rule 13a-15 under the Exchange Act, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In connection with the preparation of this Annual Report on Form 10-K, as of the end of the period covered by this report, an evaluation was performed, with the participation of the CEO and CFO, of the effectiveness of our disclosure controls and procedures, as required by Rule 13a-15 of the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Internal Control over Financial Reporting.  Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008. This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on this assessment, management believes that, as of December 31, 2008, our internal control over financial reporting was effective.

Our independent registered public accounting firm, KPMG LLP, has issued an attestation report on our internal control over financial reporting which is included in Exhibit 23 to this report.

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Change in Internal Control Over Financial Reporting — There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.   Other Information.

None.

Part III

Item 10.   Directors, Executive Officers and Corporate Governance

Information concerning our directors and executive officers is set forth under the headings “Proposal 1 — Election of Directors” and “Corporate Governance” in the 2009 Proxy Statement, as well as under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2009 Proxy Statement, incorporated herein by reference.

Item 11.   Executive Compensation

Information regarding the compensation paid by us to our directors and executive officers is set forth under the headings “Executive Compensation,” “Compensation Discussion & Analysis,” “Salary and Benefits Committee Report,” “Director Compensation” and “Performance Graph” in the 2009 Proxy Statement which are incorporated herein by reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information about our common stock that may be issued under all of our existing compensation plans as of December 31, 2008.

Equity Compensation Plan Information

December 31, 2008

	Number of				Number of Securities
	Securities to be		Weighted Average		Remaining Available for
	Issued Upon		Exercise Price		Future Issuance
	Exercise of		of Outstanding		Under Equity
	Outstanding		Options,		Compensation Plans
	Options, Warrants		Warrants and		(Excluding Securities
Plan category	and Rights		Rights		Reflected in Column (a))
Equity compensation plans approved by shareholders:
1996 Plan(1)		20,240	$	9.37		—
2000 Plan(2)		590,921		21.46		418,727
2008 Plan(3)		—		—		1,500,000
Employee Stock Purchase Plan(4)		—		—		31,777
TOTAL		611,161		21.06		1,950,504

(1)	Seacoast Banking Corporation of Florida 1996 Long-Term Incentive Plan. Shares reserved under this plan are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted under the plan, and may be granted as awards of restricted stock, performance shares, or other stock-based awards, including unrestricted stock.
(2)	Seacoast Banking Corporation of Florida 2000 Long-Term Incentive Plan. Shares reserved under this plan are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted

39

	under the plan and may be granted as awards of performance shares, and awards of restricted stock or stock-based awards.
(3)	Seacoast Banking Corporation of Florida 2008 Long-Term Incentive Plan. Shares reserved under this plan are available for issuance pursuant to the exercise of stock options and stock appreciation rights granted under the plan, and may be granted as awards of restricted stock, performance shares, or other stock-based awards.
(4)	Seacoast Banking Corporation of Florida Employee Stock Purchase Plan, as amended.

Additional information regarding the ownership of our common stock is set forth under the headings “Proposal 1 — Election of Directors” and “Principal Shareholders” in the 2009 Proxy Statement, and is incorporated herein by reference.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and transactions between us and our officers, directors and significant shareholders is set forth under the heading “Salary and Benefits Committee Interlocks and Insider Participation” and “Certain Transactions and Business Relationships” and “Corporate Governance” in the 2008 Proxy Statement and is incorporated herein by reference.

Item 14.   Principal Accountant Fees and Services

Information concerning our principal accounting fees and services is set forth under the heading “Independent Auditors” in the 2009 Proxy Statement, and is incorporated herein by reference.

Part IV

Item 15.   Exhibits, Financial Statement Schedules

(a)(1) List of all financial statements

The following consolidated financial statements and reports of independent registered public accounting firms of Seacoast, included in the 2008 Annual Report, are incorporated by reference into Part II, Item 8 of this Annual Report on Form 10-K.

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 31, 2008 and 2007

Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2008, 2007 and 2006

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006

Notes to Consolidated Financial Statements

(a)(2) List of financial statement schedules

All schedules normally required by Form 10-K are omitted, since either they are not applicable or the required information is shown in the financial statements or the notes thereto.

(a)(3) Listing of Exhibits

PLEASE NOTE: It is inappropriate for readers to assume the accuracy of, or rely upon any covenants, representations or warranties that may be contained in agreements or other documents filed as Exhibits to, or incorporated by reference in, this report. Any such covenants, representations or warranties may have been qualified or superseded by disclosures contained in separate schedules or exhibits not filed with or incorporated by reference in this report, may reflect the parties’ negotiated risk allocation in the particular transaction, may be qualified by materiality standards that differ from those applicable for securities law purposes, may not be true as of the date of this report or any other date, and may be subject to waivers by any or all of the parties. Where exhibits and schedules to agreements filed or incorporated by reference as Exhibits

40

hereto are not included in these Exhibits, such exhibits and schedules to agreements are not included or incorporated by reference herein.

The following Exhibits are attached hereto or incorporated by reference herein (unless indicated otherwise, all documents referenced below were filed pursuant to the Exchange Act by Seacoast Banking Corporation of Florida, Commission File No. 0-13660):

Exhibit 3.1 Amended and Restated Articles of Incorporation
Incorporated herein by reference from the Company’s Quarterly Report of Form 10-Q, dated May 10, 2006.

Exhibit 3.2 Amended and Restated By-laws of the Corporation
Incorporated herein by reference from the Company’s Form 8-K, dated December 18, 2007.

Exhibit 3.3 Articles of Amendment to the Amended and Restated Articles of Incorporation
Establishing and designating Fixed Rate Cumulative Perpetual Preferred Stock, Series A incorporated herein by reference from the Company’s Form 8-K, dated December 23, 2008.

Exhibit 4.1 Specimen Common Stock Certificate
Incorporated herein by reference from the Company’s Form 8-K, dated December 18, 2007.

Exhibit 4.2 Junior Subordinated Indenture
Dated as of March 31, 2005, between the Company and Wilmington Trust Company, as Trustee (including the form of the Floating Rate Junior Subordinated Note, which appears in Section 2.1 thereof), incorporated herein by reference from the Company’s Form 8-K dated March 31, 2005.

Exhibit 4.3 Guarantee Agreement
Dated as of March 31, 2005 between the Company, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee, incorporated herein by reference from the Company’s Form 8-K dated March 31, 2005.

Exhibit 4.4 Amended and Restated Trust Agreement
Dated as of March 31, 2005, among the Company, as Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and the Administrative Trustees named therein, as Administrative Trustees (including exhibits containing the related forms of the SBCF Capital Trust I Common Securities Certificate and the Preferred Securities Certificate), incorporated herein by reference from the Company’s Form 8-K dated March 31, 2005.

Exhibit 4.5 Indenture
Dated as of December 16, 2005, between the Company and U.S. Bank National Association, as Trustee (including the form of the Junior Subordinated Debt Security, which appears as Exhibit A to the Indenture), incorporated herein by reference from the Company’s Form 8-K dated December 16, 2005.

Exhibit 4.6 Guarantee Agreement
Dated as of December 16, 2005, between the Company, as Guarantor, and U.S. Bank National Association, as Guarantee Trustee, incorporated herein by reference from the Company’s Form 8-K dated December 16, 2005.

Exhibit 4.7 Amended and Restated Declaration of Trust
Dated as of December 16, 2005, among the Company, as Sponsor, Dennis S. Hudson, III and William R. Hahl, as Administrators, and U.S. Bank National Association, as Institutional Trustee (including exhibits containing the related forms of the SBCF Statutory Trust II Common Securities Certificate and the Capital Securities Certificate), incorporated herein by reference from the Company’s Form 8-K dated December 16, 2005.

Exhibit 4.8 Indenture
Dated June 29, 2007, between the Company and LaSalle Bank, as Trustee (including the form of the Junior Subordinated Debt Security, which appears as Exhibit A to the Indenture), incorporated herein by reference from the Company’s Form 8-K dated June 29, 2007.

41

Exhibit 4.9 Guarantee Agreement
Dated June 29, 2007, between the Company, as Guarantor, and LaSalle Bank, as Guarantee, incorporated herein by reference from the Company’s Form 8-K dated June 29, 2007.

Exhibit 4.10 Amended and Restated Declaration of Trust
Dated June 29, 2007, among the Company, as Sponsor, Dennis S. Hudson, III and William R. Hahl, as Administrators, and LaSalle Bank, as Institutional Trustee (including exhibits containing the related forms of the SBCF Statutory Trust III Common Securities Certificate and the Capital Securities Certificate), incorporated herein by reference from the Company’s Form 8-K dated June 29, 2007.

Exhibit 4.11 Trust Agreement of SBCF Capital Trust IV
Dated May 16, 2008, among the Company, as Depositor and Wilmington Trust Company, a Delaware banking corporation, as Trustee (including exhibits containing the related forms of Junior Subordinated Indenture, Subordinated Indenture, Senior Indenture, Guarantee Agreement and the Amended and Restated Trust Agreement of SBCF Capital Trust IV), incorporated herein by reference from the Company’s Form S-3 dated May 23, 2008.

Exhibit 4.12 Trust Agreement of SBCF Capital Trust V
Dated May 16, 2008, among the Company, as Depositor and Wilmington Trust Company, a Delaware banking corporation, as Trustee (including exhibits containing the related forms of Junior Subordinated Indenture, Subordinated Indenture, Senior Indenture, Guarantee Agreement and the Amended and Restated Trust Agreement of SBCF Capital Trust V), incorporated herein by reference from the Company’s Form S-3 dated May 23, 2008.

Exhibit 4.13 Specimen Preferred Stock Certificate
Incorporated herein by reference from the Company’s Form 8-K, dated December 23, 2008.

Exhibit 4.14 Warrant for Purchase of Shares of Common Stock
Incorporated herein by reference from the Company’s Form 8-K, dated December 23, 2008.

Exhibit 10.1 Amended and Restated Retirement Savings Plan, with Amendments*
Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 28, 2003.

Exhibit 10.2 Employee Stock Purchase Plan*
Incorporated herein by reference from the Company’s Registration Statement on Form S-8 File No. 33-25627, dated November 18, 1988.

Exhibit 10.3 Amendment #1 to the Employee Stock Purchase Plan*
Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 29, 1991.

Exhibit 10.4 Executive Employment Agreement*
Dated March 22, 1991 between A. Douglas Gilbert and the Bank, incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 29, 1991.

Exhibit 10.5 Executive Employment Agreement*
Dated January 18, 1994 between Dennis S. Hudson, III and the Bank, incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 28, 1995.

Exhibit 10.6 Executive Employment Agreement*
Dated July 31, 1995 between C. William Curtis, Jr. and the Bank, incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 28, 1996.

Exhibit 10.7 Executive Employment Agreement*
Dated January 2, 2007 between Harry R. Holland, III and the Bank, incorporated herein by reference from the Company’s Form 8-K, dated January 2, 2007.

Exhibit 10.8 1996 Long Term Incentive Plan*
Incorporated herein by reference from the Company’s Registration Statement on Form S-8 File No. 333-91859, dated December 1, 1999.

42

Exhibit 10.9 Non-Employee Director Stock Compensation Plan*
Incorporated herein by reference from the Company’s Registration Statement on Form S-8 File No. 333-70399 dated January 11, 1999.

Exhibit 10.10 2000 Long Term Incentive Plan as Amended*
Incorporated herein by reference from the Company’s Registration Statement on Form S-8 File No. 333-49972, dated November 15, 2000.

Exhibit 10.11 Executive Deferred Compensation Plan*
Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 30, 2001.

Exhibit 10.12 Line of Credit Agreement
Incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 28, 2003.

Exhibit 10.13 Change of Control Employment Agreement*
Dated December 24, 2003 between Dennis S. Hudson, III and the Registrant, incorporated herein by reference from the Company’s Form 8-K, dated December 24, 2003.

Exhibit 10.14 Change of Control Employment Agreement*
Dated December 24, 2003 between A. Douglas Gilbert and the Registrant, incorporated herein by reference from the Company’s Form 8-K, dated December 24, 2003.

Exhibit 10.15 Change of Control Employment Agreement*
Dated December 24, 2003 between C. William Curtis, Jr. and the Registrant, incorporated herein by reference from the Company’s Form 8-K, dated December 24, 2003.

Exhibit 10.16 Change of Control Employment Agreement*
Dated December 24, 2003 between William R. Hahl and the Company, incorporated herein by reference from the Company’s Form 8-K, dated December 24, 2003.

Exhibit 10.17 Change of Control Employment Agreement*
Dated December 24, 2003 between Jean Strickland and the Company, incorporated herein by reference from the Company’s Form 8-K, dated January 7, 2004.

Exhibit 10.18 Change of Control Employment Agreement*
Dated July 18, 2006 between Richard A. Yanke and the Registrant, incorporated herein by reference from the Company’s Annual Report on Form 10-K, dated March 15, 2007.

Exhibit 10.19 Directors Deferred Compensation Plan*
Dated June 15, 2004, but effective July 1, 2004, incorporated herein by reference from the Company’s Annual Report on Form 10-K, filed on March 17, 2005.

Exhibit 10.20 Executive Transition Agreement*
Dated June 22, 2007, between A. Douglas Gilbert and the Registrant incorporated herein by reference from the Company’s Form 8-K, dated June 22, 2007.

Exhibit 10.21 Consulting and Restrictive Covenants Agreement*
Dated June 22, 2007, between A. Douglas Gilbert and the Registrant incorporated herein by reference from the Company’s Form 8-K, dated June 22, 2007.

Exhibit 10.22 Executive Employment Agreement*
Dated March 26, 2008 between O. Jean Strickland and the Bank and Company, incorporated herein by reference from the Company’s Annual Report on Form 8-K, dated March 26, 2008.

Exhibit 10. 23 2008 Long-Term Incentive Plan*
Incorporated herein by reference from the Company’s Proxy Statement on Form DEF 14A as Exhibit A, dated March 18, 2008.

43

Exhibit 10.24 Letter Agreement
Dated December 19, 2008, between the Company and the United States Department of the Treasury incorporated herein by reference from the Company’s Form 8-K, dated December 23, 2008.

Exhibit 10.25 Formal Agreement
Dated December 16, 2008, between the Company and the Office of the Comptroller of the Currency incorporated herein by reference from the Company’s Form 8-K, dated December 23, 2008

Exhibit 10.26 Waiver of Senior Executive Officers*
Dated December 19, 2008, issued to the United Stated Department of the Treasury incorporated herein by reference from the Company’s Form 8-K, dated December 23, 2008.

Exhibit 10.27 Consent of Senior Executive Officers*
Dated December 19, 2008, issued to the United States Department of the Treasury incorporated herein by reference from the Company’s Form 8-K, dated December 23, 2008.

Exhibit 10.28 Form of 409A Amendment to Employment Agreements with Dennis S. Hudson, III, William R. Hahl, A. Douglas Gilbert, O. Jean Strickland and H. Russell Holland, III*
Incorporated herein by reference from the Company’s Form 8-K, dated January 5, 2009.

Exhibit 13 2008 Annual Report. The following portions of the 2008 Annual Report are incorporated herein by reference:

Financial Highlights

Financial Review — Management’s Discussion and Analysis

Selected Quarterly Information — Quarterly Consolidated Income Statements

Selected Quarterly Information — Consolidated Quarterly Average Balances, Yields & Rates

Financial Statements

Notes to Consolidated Financial Statements

Financial Statements — Report of Independent Certified Public Accountants

Exhibit 21 Subsidiaries of Registrant

Exhibit 23 Consent of Independent Registered Public Accounting Firm

Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Management contract or compensatory plan or arrangement.
**	The certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report on Form 10-K and are “furnished” to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act.

(b) Exhibits

The response to this portion of Item 15 is submitted above.

(c) Financial Statement Schedules

None.

44

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stuart, State of Florida, as of the 27th day of February 2009.

SEACOAST BANKING CORPORATION OF FLORIDA
(Registrant)

By:  /s/  Dennis S. Hudson, III

Dennis S. Hudson, III

Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	Date
/s/  Dennis S. Hudson, III Dennis S. Hudson, III, Chairman of the Board, Chief Executive Officer and Director (principal executive officer)	February 27, 2009
/s/  Dale M. Hudson Dale M. Hudson, Vice-Chairman of the Board and Director	February 27, 2009
/s/  A. Douglas Gilbert A. Douglas Gilbert, Director	February 27, 2009
/s/  William R. Hahl William R. Hahl, Executive Vice President and Chief Financial Officer (principal financial and accounting officer)	February 27, 2009
/s/  Stephen E. Bohner Stephen E. Bohner, Director	February 27, 2009
/s/  Jeffrey C. Bruner Jeffrey C. Bruner, Director	February 27, 2009
/s/  John H. Crane John H. Crane, Director	February 27, 2009
/s/  T. Michael Crook T. Michael Crook, Director	February 27, 2009

45

	Date
/s/  H. Gilbert Culbreth, Jr. H. Gilbert Culbreth, Jr, Director	February 27, 2009
/s/  Christopher E. Fogal Christopher E. Fogal, Director	February 27, 2009
/s/  Jeffrey S. Furst Jeffrey S. Furst, Director	February 27, 2009
/s/  Dennis S. Hudson, Jr. Dennis S. Hudson, Jr., Director	February 27, 2009
/s/  Thomas E. Rossin Thomas E. Rossin, Director	February 27, 2009
/s/  Thomas H. Thurlow, Jr. Thomas H. Thurlow, Jr., Director	February 27, 2009
/s/  Edwin E. Walpole, III Edwin E. Walpole, III, Director	February 27, 2009

46

EX-13

EXHIBIT 13

FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)	2008			2007			2006			2005			2004
FOR THE YEAR
Net interest income	$	77,231		$	84,469		$	89,040		$	72,185		$	52,774
Provision for loan losses		88,634			12,745			3,285			1,317			1,000
Noninterest income:
Securities gains (losses)		355			(5,048	)		(157	)		128			44
Other		21,565			24,910			24,260			20,517			18,462
Noninterest expenses		78,214			77,423			73,045			59,100			47,281
Income (loss) before income taxes		(67,697	)		14,163			36,813			32,413			22,999
Provision (benefit) for income taxes		(22,100	)		4,398			12,959			11,654			8,077
Net income (loss)		(45,597	)		9,765			23,854			20,759			14,922
Per Share Data
Net income (loss) available to common shareholders:
Diluted		(2.41	)		0.51			1.28			1.24			0.95
Basic		(2.41	)		0.52			1.30			1.27			0.97
Cash dividends declared		0.34			0.64			0.61			0.58			0.54
Book value per share common		8.98			11.22			11.20			8.94			7.00
Dividends to net income		n/m	(1)		124.80	%		47.10	%		46.30	%		55.60	%
AT YEAR END
Assets	$	2,314,436		$	2,419,874		$	2,389,435		$	2,132,174		$	1,615,876
Securities		345,901			300,729			443,941			543,024			588,017
Net loans		1,647,340			1,876,487			1,718,196			1,280,989			892,949
Deposits		1,810,441			1,987,333			1,891,018			1,784,219			1,372,466
Shareholders’ equity		216,001			214,381			212,425			152,720			108,212
Performance ratios:
Return on average assets		(1.97	)%		0.42	%		1.03	%		1.07	%		1.05	%
Return on average equity		(22.25	)		4.46			12.06			14.95			13.75
Net interest margin(2)		3.58			3.92			4.15			3.97			3.89
Average equity to average assets		8.87			9.41			8.55			7.17			7.63

1.	Not meaningful
2.	On a fully taxable equivalent basis

8

FINANCIAL SECTION
CONTENTS

Management’s Discussion & Analysis	10
Financial Tables	42
Report of Independent Registered Public Accounting Firms	57
Audited Financial Statements	59

9

MANAGEMENT’S DISCUSSION & ANALYSIS

Overview and Outlook

Our Business

Seacoast Banking Corporation of Florida is a single-bank holding company located on Florida’s southeast coast (as far south as Broward County and north to Brevard County) as well as Florida’s interior around Lake Okeechobee and up to and including Orlando. The Company has 42 full service branches.

The coastal markets in which the Company operates have had population growth rates over the past 10 years of over 20 percent and are expected to grow an additional 20 percent or more over the next 10 years. Prospectively, the Company will consider strategic acquisitions as part of the Company’s overall future growth plans where these are in complementary and attractive growth markets within the State of Florida.

During 2008, the Company’s banking subsidiary consolidated, improved and opened a number of branch offices. The Company’s banking subsidiary consolidated three branch locations in the first quarter; the Ft. Pierce Wal-Mart branch office in St. Lucie County was merged with an existing full service branch and closed on February 28, 2008, the Mariner Square branch in Martin County and the Juno Beach branch in Palm Beach County were consolidated with newer branches serving the same markets and were closed on March 31, 2008. A new branch in western Port St. Lucie, Florida in an area with major retail development on Gatlin Boulevard, was opened in March 2008. The Company also upgraded its Arcadia branch location in DeSoto County, significantly increasing this location’s size in April 2008. A second branch in Brevard County on Murrell Road and a new, more accessible office replacing the Rivergate branch in St. Lucie County were constructed and opened on April 28, 2008 and June 9, 2008, respectively. In addition, a new, more visible Ft. Pierce branch opened on October 22, 2008, replacing our prior location in Ft. Pierce that was sold, and building improvements at the Beachland office in Indian River County began in November 2008, with branch personnel moving to a separate, leased facility in close proximity. Finally, a new branch office in the same shopping plaza as our existing Wedgewood branch in Martin County but with better ingress and egress on a corner of U.S. Highway One replaced the existing office and opened January 20, 2009.

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

Strategic Reviews

The Company operates both a full retail banking strategy in its core markets which are some of Florida’s fastest growing and wealthiest, as well as a complete commercial banking strategy. These core markets are comprised of Martin, St. Lucie and Indian River counties located on Florida’s southeast coast and contain 24 of the 42 retail branch locations including three private banking centers. Because of the branch coverage in these markets, the Company has a significant presence providing convenience to customers, and a larger deposit market share. The Company’s deposit mix is very favorable with 60 percent of deposit balances comprised of NOW, savings, money market and noninterest bearing transaction customer accounts. Therefore, the cost of deposits averaged 2.30 percent for 2008 (compared to 2.90 percent for 2007), which the Company believes ranks among the lowest when compared to the Company’s peer group of similar asset size banks. As part of the Company’s complete retail product and service offerings, customers are provided wealth management services through its full service broker dealer and trust wealth management divisions.

Over the years the Company has improved its revenues by expanding its commercial/commercial real estate and consumer lending capabilities. This has included de novo market expansion into Palm Beach, Broward and Brevard Counties with added loan officers, loan production offices and retail branches. While the Company had one less branch office by year-end 2008, several offices were replaced with newer more convenient locations. The Company continues to explore acquisitions and de novo expansion into other markets, and at times may choose to consolidate certain locations to achieve a more effective and efficient service network.

10

During 2008, the Company had limited commercial/commercial real estate loan production of $117 million, reflecting the unprecedented housing and commercial real estate market decline and recessionary environment generally, as well as the Company’s efforts which began in 2007 and continued during 2008 to reduce its concentration in residential real estate construction and land development loans. In comparison, added lending capabilities resulted in the largest commercial and commercial real estate loans production in the Company’s history in the three prior years, with a total of $445 million of these loans originated in 2007, $443 million in 2006 and $465 million in 2005. In 2008 the Company closed $105 million in residential loans, lower than the $135 million, $172 million and $195 million closed in 2007, 2006 and 2005, respectively. The slower residential real estate market and uncertain economic conditions dampened residential home sales and as a result residential loan production. However, with better market penetration, expanded coverage and interest rates, the Company seeks improved residential loan production in 2009.

The net interest margin improved from 3.57 percent in 2003 to 4.15 percent in 2006, but declined to 3.92 percent in 2007 and 3.58 percent in 2008. During 2008, a decline in loans of 11.7 percent, lower loan yields and higher nonaccrual loans were partially offset by reduced deposit costs, but still produced a lower net interest margin, compared to 2007. The Board of Governors of the Federal Reserve System (the “Federal Reserve”) has made an historic effort in 2008 to rejuvenate the economy and limit the effect of the recession by lowering interest rates by 400 basis points and expanding various liquidity programs. Fourth quarter 2008’s net interest margin was 3.32 percent, reflecting a decrease of 39 basis points from last year’s fourth quarter as a result of the lower interest rates. The net interest margin is likely to remain under pressure until economic conditions stabilize and a decline in outstanding nonaccrual loans occurs. Opportunities for margin improvement include further improvements in our deposit mix, increased residential mortgage production and the use of proceeds from the issuance of preferred stock to the Treasury in December 2008.

The Company expects its brand of banking will continue to be attractive, offering all of the sophisticated products and services of its largest competitors delivered with the high quality customer service and convenience of a small community bank. This strategy has historically provided high value customer relationships and a much lower overall cost of funds when compared to peers. While maintaining this longstanding strategic perspective, the Company undertook a comprehensive review of its expense structure during the fourth quarter of 2008, developing a plan to reduce expenses overall by $7.6 million on an annualized basis over the next year. Reductions of $5.0 million were implemented and effective January 1, 2009. This cost benefit will be partially offset by higher Federal Deposit Insurance Corporation (“FDIC”) insurance costs, a result of the restoration of the Deposit Insurance Fund by the FDIC, anticipated increases in premium rates, and the Company’s participation in the FDIC’s Temporary Liquidity Guarantee Program’s (“TLG”) noninterest bearing transaction account guarantee program.

Loan Growth and Lending Policies

During late 2006 and 2007, the economic environment in Florida began to weaken and the Company increased its focus and monitoring of the Company’s exposure to residential land, acquisition and development loans. These activities resulted in greater loan pay-downs, guarantor performance, and the obtaining of additional collateral. The Company also strengthened its liquidation activities to better control the level of these assets, with $68 million in loan sales over the last half of 2008. Overall, the Company’s exposure to residential land, acquisition and development loans was reduced from $352 million or 20.2 percent of total loans in early 2007 to $130 million or 7.8 percent at December 31, 2008.

During 2006, loan portfolio growth was significant, totaling 34.4 percent. For 2007, loan growth slowed to 9.5 percent, as a result of our geographic expansion and in line with expectations for 8 to 10 percent growth for that year. For 2008, balances in the loan portfolio declined 11.7 percent, reflecting the recessionary climate, significantly lower loan demand and loan sales. While higher mortgage rates and a slowdown in new and existing home sales in the Company’s markets reduced demand for residential mortgages and construction lending for new homes in 2007, the Federal Reserve’s interest rate and monetary actions during 2008 were oriented to reinvigorate growth prospectively and stabilize housing prices by adding liquidity and reducing interest rates. While anticipated loan pay-downs in 2009 may limit loan growth, loan growth opportunities next year include 1-4 family agency conforming residential mortgages. Over the long term, the Company’s recent

11

expansion into contiguous counties in Florida through acquisition and de novo activities may contribute to loan growth and increase the Company’s lending capacity.

Deposit Growth, Mix and Costs

The Company is confident of its continued emphasis on its brand of banking with high quality customer service and convenient branch locations will provide stable, low cost deposit funding growth over the long term. This past year and prospectively, the Company is building its retail deposit franchise using new strategies and product offerings while maintaining its focus on building customer relationships. More of management’s time and efforts have been and will be devoted to this effort ranking as the second highest priority behind the first priority of improving asset quality in 2009. The Company believes it is the most convenient bank in its Treasure Coast markets with more locations than any competitor in the counties of Martin, St. Lucie and Indian River counties, which are located on Florida’s southeast coast.

While interest rates increased during 2006 and remained higher during much of 2007, interest rates decreased dramatically during 2008 as the economic climate worsened and the Federal Reserve implemented interest rate reduction strategies. As a result, customers deposited more funds into certificates of deposit in 2008, while maintaining lower average balances in savings and other liquid deposits that pay no interest or a lower interest rate. Low cost NOW, savings and money market deposits decreased 24.0 percent during 2008, after increasing 13.6 percent and 5.4 percent, respectively, in 2007 and 2006. The Company’s overall deposit mix remains favorable and its average cost of deposits, including noninterest bearing demand deposits, remains low. The average cost of deposits for 2008 was 2.30 percent, decreasing 60 basis points from prior year, after increasing 74 basis points during 2007 to 2.88 percent when compared to 2006. Over the past three years, noninterest bearing demand deposits decreased 16.0 percent, 16.4 percent and 17.2 percent, respectively.

A deteriorating residential real estate market reduced average noninterest bearing balances in customer deposit accounts, particularly the accounts of title companies, attorneys and others who serviced the real estate industry. During 2008, total deposits declined $177 million or 8.9 percent, while sweep repurchase agreements increased $69 million or 78.8 percent year over year. The Company’s central Florida region’s deposits declined by $195 million, attributable to the real estate related economic decline affecting our commercial customers’ business activities, and competition from former officials of our offices in that region. As reported throughout 2008, the Company has been executing a retail strategy and has experienced strong growth in core deposit relationships when compared to prior year’s results. While total deposits declined, deposit growth in the Company’s other markets was stronger. New personal checking relationships have increased, which have improved market share, increased average services per household and decreased customer attrition. During 2008, new personal checking household average deposit balances and average services per household have increased by 68 percent and 17 percent, respectively, compared to new personal checking households for the same period in 2007.

Noninterest Income Sources

In addition to fee income from mortgage banking activities, the Company derives fees from service charges on deposit accounts, investment management, trust and brokerage services, as well as fees from originating and selling large yacht loans. It is the Company’s objective to increase its share of its customers’ financial services and to increase these sources of revenues to approximately 30 percent of total revenues. In 2008 and 2007, the Company collected approximately 22 percent and 23 percent of total revenues (net interest income and noninterest income), respectively, from its fee-based business activities. Our fees from debit card use are affected directly by consumer spending which has been adversely affected by economic conditions.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”), including prevailing practices within the financial services industry. The

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preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time and the use of revised estimates and assumptions could materially affect amounts reported in subsequent financial statements. After consultation with the Company’s Audit Committee, the Company believes the most critical accounting estimates and assumptions that may affect the Company’s financial status and that involve the most difficult, subjective and complex assessments are:

•  the allowance and the provision for loan losses;

•  the fair value of securities;

•  realization of deferred tax assets;

•  goodwill impairment; and

•  contingent liabilities.

The following is a brief discussion of the critical accounting policies intended to facilitate a reader’s understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to us that could have a material effect on our reported financial information. For more information regarding management’s judgments relating to significant accounting policies and recent accounting pronouncements, see “Notes to Consolidated Financial Statements, Note A — Significant Accounting Policies.”

Allowance and Provision for Loan Losses

Management determines the provision for loan losses charged to operations by continually analyzing and monitoring delinquencies, nonperforming loans and the level of outstanding balances for each loan category, as well as the amount of net charge-offs, and by estimating losses inherent in its portfolio. While the Company’s policies and procedures used to estimate the provision for loan losses charged to operations are considered adequate by management, there exist factors beyond the control of the Company, such as general economic conditions both locally and nationally, which make management’s judgment as to the adequacy of the provision and allowance for loan losses necessarily approximate and imprecise (see “Nonperforming Assets”).

The provision for loan losses is the result of a detailed analysis estimating an appropriate and adequate allowance for loan losses. The analysis includes the evaluation of impaired loans as prescribed under SFAS No. 114 “Accounting by Creditors for Impairment of a Loan,” and SFAS No. 118 “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures,” as well as, an analysis of homogeneous loan pools not individually evaluated as prescribed under SFAS No. 5, “Accounting for Contingencies.” For 2008, the provision for loan losses was $88.6 million, substantially higher than 2007’s provisions of $12.7 million. The provision for loan losses for 2008 was $7.5 million more than net charge-offs, which totaled $81.1 million, or 4.45 percent, of average total loans, reflecting the downturn in the residential real estate markets, property values and deteriorated credit conditions. In comparison, net charge-offs for 2007 were $5.8 million.

Table 12 provides certain information concerning the Company’s allowance and provisioning for loan losses for the years indicated.

The increase in net charge-offs has been primarily due to higher net charge-offs in the residential construction and land development loan portfolio, a reflection of the unprecedented housing market decline. A downturn in residential real estate prices and sales has negatively affected the entire industry since mid-2006. The Company began a comprehensive effort to reduce this exposure in early 2007. With timely and more aggressive collection efforts, loan sales, and charge-offs, residential construction and land development loans declined $165 million and now represent 7.8 percent of total loans at the end of 2008. The performing loans in this portfolio total approximately $69 million and are represented by 78 customer relationships and an

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average loan size of approximately $900,000. We continue to monitor and update regularly our credit evaluations of these borrowers, and the collateral values as sales volumes and prices change in our markets. The reduction in the Company’s exposure should reduce earnings volatility from this portfolio in the future.

The Company’s other loan portfolios related to residential real estate have not had significant problems as the Company has never originated any residential subprime, Alt A, option ARMS, or negative amortizing mortgage loans. Home equity loans (amortizing 10 year loans for home improvements) totaled $84.8 million and home equity lines totaled $58.5 million. Each borrower’s credit was fully documented as part of the Company’s underwriting of home equity lines. The Company never promoted home equity lines using solely credit scoring and therefore believes this portfolio should perform better than peers. Both charge-offs and past due ratios have been better than those nationally and Florida in 2008. Net charge-offs for the year ended 2008 totaled $502,000 for home equity lines. In addition, the commercial real estate mortgage portfolio not related to residential construction and development has not had significant credit quality deterioration. Total past due loans in excess of 30 days (excluding nonaccrual loans) totaled 0.83% at year-end and loans for this portfolio over 90 days past due not on nonaccrual totaled 0.11%.

Since year-end 2007, nonaccrual loans increased by $19.1 million to $87.0 million at December 31, 2008 (see “Note F — Impaired Loans and Allowance for Loan Losses” and “Nonperforming Assets” in the Company’s consolidated financial statements). Nonperforming loans increased as a result of loans to developers of residential real estate projects not performing in accordance with their contractual obligations, and as a result of collateral property valuations declining and continued market stresses. During the third and fourth quarters of 2008, the Company sold various larger balance residential construction and land development loans totaling $68 million to reduce risk in our loan portfolio. Over the last nine months of 2008, the Company reduced its exposure to large residential construction and land development loans, as evidenced by loans in this portfolio with balances of $4 million or more declining by almost 70 percent from $163.7 million, or 71 percent of risk-based capital at March 31, 2008, to $50.4 million, or 22 percent of risk-based capital, at December 31, 2008. Of the remaining $50.4 million in loans greater than $4 million, $29.9 million (59.3%) are classified as nonperforming.

QUARTERLY TRENDS — LOANS AT END OF PERIOD

											Nonperforming
2008			1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		4th Qtr		Number
			(Dollars in Millions)
Residential Construction and Land Development
Condominiums	>$	4 million	$	30.6	$	26.3	$	19.6	$	8.6		—		—
	<$	4 million		26.6		21.1		13.0		8.8	$	2.8		1
Town homes	>$	4 million		19.4		17.1		17.1		—		—		—
	<$	4 million		4.4		2.9		4.6		6.1		5.1		2
Single Family Residences	>$	4 million		20.8		21.2		13.5		11.9		—		—
	<$	4 million		35.9		28.3		23.7		14.9		5.7		9
Single Family Land & Lots	>$	4 million		85.1		64.3		40.3		22.1		22.1		3
	<$	4 million		27.0		30.8		29.9		30.7		11.6		15
Multifamily	>$	4 million		7.8		7.8		7.8		7.8		7.8		1
	<$	4 million		24.8		26.2		22.9		19.0		5.1		4
TOTAL	>$	4 million		163.7		136.7		98.3		50.4		29.9		4
TOTAL	<$	4 million		118.7		109.3		94.1		79.5		30.3		31
GRAND TOTAL			$	282.4	$	246.0	$	192.4	$	129.9	$	60.2		35

The Company’s total construction and land development loans related to the residential market currently total approximately $129.9 million or 7.8 percent of total loans at December 31, 2008 (see “Loan Portfolio”), down from approximately $295.1 million or 15.5 percent at December 31, 2007 and its peak of $340.0 million at December 31, 2006. These lending relationships are monitored on a monthly basis and the value of the

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underlying real estate has been evaluated using current appraisals, and where appropriate, discounted cash flow analysis using estimated holding periods and prospective future sales values discounted at rates that we believed appropriate. The Company believes it was among the first banks to recognize the change in market conditions in mid-2006 and is the beneficiary of early identification of deteriorating loans and potential problems. Early monitoring together with additional equity added by developers, loan guarantees and additional collateral have reduced the Company’s risks exposure. We have also engaged in various sales of these loans in 2008. Management intends to further reduce these exposures in the coming year and will monitor information about collateral values and consider possible defaults by borrowers, especially for real estate acquisition and development loans.

Total loans declined over the past year by approximately 11.7 percent. For 2009, the Company’s loan portfolio is expected to experience further declines, however the Company’s loan loss provisions should be less volatile as problem loans related to the slow residential real estate market and valuations are expected to be more limited than realized during 2008, and a result of smaller portfolio and sales of larger commercial real estate loans. The last time the Company experienced higher net charge-offs and nonperforming loans was during the period 1988-1993 when the real estate markets in Florida experienced deflation and the national economy was in recession.

The Congress and the bank regulators are encouraging recipients of TARP capital to use such capital to make loans and it may not be possible to safely, soundly and profitably make sufficient loans in the current economy. Congressional demands for additional lending by TARP capital recipients, and regulatory demands for demonstrating and reporting such lending are increasing. On November 12, 2008, the bank regulatory agencies issued a statement encouraging banks to, among other things, “lend prudently and responsibly to creditworthy borrowers” and to “work with borrowers to preserve homeownership and avoid preventable foreclosures.” The Company continues to lend and has expanded mortgage loan originations. However, the future demands for additional lending are unclear and uncertain.

A total provision for loan losses of $12,745,000 was recorded for 2007, versus $3,285,000 recorded during 2006, partially as a result of loan growth of $443 million or 34 percent in 2006, including $204 million of loans from the acquisition of Big Lake National Bank in 2006. Net charge-offs totaled $5,758,000 or 0.31 percent of average loans in 2007, compared to net recoveries of $(106,000), or (0.01) percent of average loans for 2006. Net charge-offs were nominal in prior years at $134,000, or 0.01 percent of average loans for 2005, $562,000, or 0.07 percent of average loans for 2004, $666,000, or 0.10 percent of average loans for 2003, $208,000, or 0.03 percent of average loans for 2002 and $184,000, or 0.02 percent of average loans for 2001. Collateral evaluations (including the potential effects of existing sales contract cancellations) in response to the changes in the market values for residential real estate resulted in the establishment of valuation allowances and increases in the provision for loan losses of $8,375,000 and $3,813,000 in the third and fourth quarters of 2007, respectively.

A historically favorable credit loss experience limited the need to provide large additions to the allowance for loan losses during most of 2006. However, during the fourth quarter of 2006, our provisions for loan losses were increased to $2,250,000, as a result of the Company’s comprehensive review of all large credits, primarily construction loans, where the primary source of repayment was related to the sale of residential real estate, even though no immediate or impaired loans were identified.

Management continuously monitors the quality of the loan portfolio and maintains an allowance for loan losses it believes sufficient to absorb probable losses inherent in the loan portfolio. The allowance for loan losses totaled $29,388,000 at December 31, 2008, $7,486,000 greater than one year earlier. The allowance for loan losses totaled $21,902,000 at December 31, 2007, an increase of $6,987,000 from December 31, 2006. The allowance for loan losses framework has three basic elements: specific allowances for loans individually evaluated for impairment, a formula-based component for pools of homogeneous loans within the portfolio that have similar risk characteristics, which are not individually evaluated, and qualitative elements which are subjective and require a high degree of management judgment and are based on our views of other inherent risk factors, models and estimates, including changes in the economy and relevant markets. Management

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continually evaluates the allowance for loan losses methodology seeking to refine and enhance this process as appropriate, and it is likely that the methodology will continue to evolve over time.

Our analyses of the adequacy of the allowance for loan losses take into account qualitative factors such as credit quality, loan concentrations, internal controls, audit results, staff turnover, local market conditions and loan growth. In its continuing evaluation of the allowance and its adequacy, management also considers quantitative factors such as, the Company’s loan loss experience, the loss experience of peer banks, the amount of past due and nonperforming loans, and the estimated values of loan collateral. Commercial and commercial real estate loans are assigned internal risk ratings reflecting our estimate of the probability of the borrower defaulting on any obligation and the estimated probable loss in the event of default. Retail credit risk is measured from a portfolio view rather than by specific borrower and are assigned internal risk rankings reflecting the combined probability of default and loss. The Company’s independent Credit Administration Department assigns allowance factors to the individual internal risk ratings based on an estimate of the risk using a variety of tools and information. Loan Review is an independent unit that performs loan reviews and evaluates a representative sample of credit extensions after the fact for appropriate individual internal risk ratings. Loan Review has the authority to change internal risk ratings and is responsible for assessing the adequacy of credit underwriting. This unit reports directly to the Directors Loan Committee of the Board of Directors.

The allowance as a percentage of loans outstanding increased from 0.86 percent to 1.15 percent during 2007 and increased to 1.75 percent during 2008. The allowance for loan losses represents management’s estimate of an amount adequate in relation to the risk of losses inherent in the loan portfolio, as well as deterioration in our local economies, especially in the sales volumes and values in our residential real estate markets.

Table 13 summarizes the Company’s allocation of the allowance for loan losses to each type of loan and information regarding the composition of the loan portfolio at the dates indicated.

Concentration of credit risk, discussed under “Loan Portfolio” of this discussion and analysis, can affect the level of the allowance and may involve loans to one borrower, an affiliated group of borrowers, borrowers engaged in or dependent upon the same industry, or a group of borrowers whose loans are predicated on the same type of collateral. The Company’s significant concentration of credit is a portfolio of loans secured by real estate. At December 31, 2008, the Company had $1.52 billion in loans secured by real estate, representing 90.7 percent of total loans, up slightly from 88.7 percent at December 31, 2007. In addition, the Company is subject to a geographic concentration of credit because it only operates in central and southeastern Florida. The Company has credit exposure to commercial real estate developers and investors with total commercial real estate construction and land development loans of $339 million or 20.2 percent of total loans at year-end 2008, down from $538 million or 28.3 percent at year-end 2007. The Company’s exposure to these credits is secured by project assets and personal guarantees. The exposure to this industry group, together with an assessment of current trends and expected future financial performance, are considered in our evaluation of the adequacy of the allowance for loan losses.

While it is the Company’s policy to charge off in the current period loans in which a loss is considered probable, there are additional risks of future losses that cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of the economy and local market conditions as well as conditions affecting individual borrowers, management’s judgment of the allowance is necessarily approximate and imprecise. It is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses in comparison to a group of peer companies identified by the regulatory agencies.

In assessing the adequacy of the allowance, management relies predominantly on its ongoing review of the loan portfolio, which is undertaken both to ascertain whether there are probable losses that must be charged off and to assess the risk characteristics of the portfolio in aggregate. This review considers the judgments of management, and also those of bank regulatory agencies that review the loan portfolio as part of their regular examination process. Our bank regulators have generally agreed with our credit assessments,

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however the regulators could seek additional provisions to our allowance for loan losses and additional capital in light of the risks of our markets and credits.

Seacoast National entered into a formal agreement with the OCC on December 16, 2008 to improve our bank subsidiary, Seacoast National’s asset quality. Under the formal agreement, Seacoast National’s board of directors has appointed a compliance committee to monitor and coordinate Seacoast National’s performance under the formal agreement. The formal agreement provides for the development and implementation of written programs to reduce Seacoast National’s credit risk, monitor and reduce the level of criticized assets, and manage commercial real estate (“CRE”) loan concentrations in light of current adverse CRE market conditions.

Nonperforming Assets

Table 14 provides certain information concerning nonperforming assets for the years indicated.

Nonperforming assets at December 31, 2008 totaled $92,005,000 and are comprised of $86,970,000 of nonaccrual loans and $5,035,000 of other real estate owned (foreclosed property), compared to $68,569,000 at December 31, 2007 (comprised of $67,834,000 in nonaccrual loans and $735,000 of other real estate owned). At December 31, 2008 and 2007, virtually all nonaccrual loans were secured with real estate including $60.2 million of nonaccrual loans that are land and acquisition and development loans related to the residential market. During 2008, sales and charge-offs of land and acquisition and development loans were transacted to reduce the Company’s concentration and exposure to problem assets within this loan type. In addition, working with distressed borrowers, the Company entered into various loan restructuring arrangements, impacting both retail and commercial customers. While residential real estate sales volumes have improved, current residential real estate sales transactions are low compared to prior years and market prices have been declining since mid-2006 but recently sales prices have stopped declining.

At December 31, 2008, loans totaling $101,424,000 were considered impaired and $5,152,000 of the allowance for loan losses was allocated for potential losses on these loans, compared to $67,762,000 and $4,183,000, respectively, at December 31, 2007. Included in impaired loans at December 31, 2008 are loans of $12,616,000 that were restructured and are in compliance with modified terms and $1,838,000 in accruing loans past due 90 days or more.

Nonperforming assets are subject to changes in the economy, both nationally and locally, changes in monetary and fiscal policies, and changes in conditions affecting various borrowers of Seacoast National.

Fair Value of Securities

At December 31, 2008, no trading securities were outstanding and available for sale securities totaled $318,030,000. The fair value of the available for sale portfolio at December 31, 2008 was more than its historical amortized cost, producing net unrealized gains of $3,340,000 that have been included in other comprehensive income as a component of shareholders’ equity (net of taxes). The Company made no change to the valuation techniques used to determine the fair values during 2008. The fair value of each security available for sale or trading is obtained from independent pricing sources utilized by many financial institutions, or quoted market prices for similar securities or discounted cash flow analyses, using observable market data. However, actual values can only be determined in an arms-length transaction between a willing buyer and seller and can, and often do, vary from these reported values. Furthermore, significant changes in recorded values due to changes in actual and perceived economic conditions can occur rapidly, producing greater unrealized losses or gains in the available for sale portfolio.

The credit quality of the Company’s security holdings is investment grade and higher and the securities are traded in liquid markets. Obligations of U.S. agencies total $288 million, or 90.7% of the total portfolio. The remainder of the portfolio consists of super senior AAA private label securities originated in 2005, 2004, and 2003 and obligations of state and political subdivisions. The AAA private label securities are reviewed quarterly for any indication of other than temporary impairment. The collateral underlying these investments is comprised of whole loan 30 and 15 year fixed rate and 10/1 adjustable rate mortgages. As a result, the

17

mortgages comprising the collateral for these securities have had minimal foreclosures and losses over the last twelve months. Changes in the fair values, as a result of deteriorating economic conditions and credit spread changes, should only be temporary. Further, management believes that the Company’s other sources of liquidity, as well as the cash flow from principal and interest payments from the securities portfolio, reduces the risk that losses would be realized as a result of needed liquidity from the securities portfolio.

Realization of Deferred Tax Assets

Our wholly-owned subsidiary Seacoast National has a state deferred tax assets of $6.6 million reflecting the benefit of a net operating loss (“NOL”) carry-forwards of $5.5 million, which will expire between 2027 and 2028 and other temporary differences of approximately $1.1 million. The deferred state tax asset resulted primarily from a large and unusual provision for loan losses required in 2008 related to Seacoast National’s residential land and development loan portfolio.

While consumer and business loans continue to perform well despite the general economic downturn, a collapse in the housing market and surplus new home inventory created excessive risk in the Company’s residential construction and land development portfolios. Early recognition of and aggressive responses to these unprecedented conditions resulted in dramatically higher loan loss provisions and negative earnings for Seacoast National as 2008 progressed. However, realistic and timely recognition of market conditions allowed us to realign our resources early in the year to achieve rapid reductions in these exposures which, at December 31, 2008 were just 7.8 percent of loans compared to over 20 percent in the prior year, and a significant reduction in average loan size. Therefore, management believes that loan loss provisions will likely be much lower as market conditions improve in the future and there is a 20-year carry forward period for state NOLs. It is management’s opinion that Seacoast National’s future taxable income will allow the recovery of the NOL, and the utilization of their deferred tax assets.

Management believes this for the following reasons:

Core operating earnings without the provision are still quite good and will improve as the recessionary economic cycle ends. Management believes that its strong earnings history pre-tax and pre-provision for loan losses is positive evidence. For example, taxable earnings pre-provision for Seacoast National for the year 2008 was $20.9 million. In addition, other costs related to the collection of problem loans were elevated during 2008. These costs also are expected to be lower going forward. For the years 2007 and 2006, the taxable earnings (including much smaller provisions for loan losses) were $26.9 million and $40.1 million, respectively. Seacoast National has been through other similar economic cycles in the past where provisioning for loan losses has been elevated followed by periods of lower risk and little to no loan loss provisioning is required. In addition, the Board of Directors has implemented policies and a time table for management to reduce the size and level of credit and concentration risk for the loan portfolio. This was evidenced in the current year where the loan portfolio declined by $222 million. A total of $165 million of the reduction was in the highest risk construction and land development residential portfolio where the majority of loan charge-offs occurred. At year-end 2008, this portfolio totaled $129.9 million with $60.2 million of those loans already classified as nonperforming and charged down to their current fair values, which are supported by current appraisals. Of the $81.1 million of net charge-offs for 2008, $71.1 million (87.7%) were related to this portfolio, some of which resulted from the sale of loans into inactive markets producing larger, more unusual losses. The remaining performing portfolio of $69.7 million is comprised of 78 relationships with an average loan size of $894,000. Management believes the risks in this remaining construction and land development for residence portfolio and on its other loan portfolio categories will produce much lower net charge-offs as market conditions improve and that those probable losses are reflected in its allowance for loan losses at year end 2008. Therefore, loan loss provisions over the next 20 years of the carry forward period will allow for future taxable income to recover the NOL carry-forward.

In addition, management has implemented cost reductions for 2009 of approximately $5.0 million, including staff reductions, reduced employee benefits, and reduced legal and professional fees offset by higher FDIC premiums. For the state NOL generated during 2008, taxable earnings require Seacoast National to recover average future taxable income of $4.5 million per year over the next 20 years, less than management’s

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cost reductions for 2009.

As a result of the losses incurred in 2008, the Company is in a three-year cumulative pretax loss position at December 31, 2008. A cumulative loss position is considered significant negative evidence in assessing the realizability of a DTA. The use of the Company’s forecast of future taxable income was not considered positive evidence which could be used to offset the negative evidence at this time given the uncertain economic conditions. Therefore, a valuation allowance of $5.6 million was recorded related to the Company’s state deferred tax asset.

Goodwill Impairment

The Company’s goodwill is no longer amortized, but tested annually for impairment. The amount of goodwill at December 31, 2008 totaled $49.8 million, and results from the acquisitions of three separate community banks whose operations have been fully integrated into one operating subsidiary bank of the Company. The Company operates as a single segment bank holding company.

The assessment as to the continued value of goodwill involves judgments, assumptions and estimates. At December 11, 2008, the Company’s closing price per common share in the open market approximated 64 percent of book value per common share, which was considered a possible indication of impairment. The Company enlisted the assistance of an independent third party to determine fair value. In performing the analysis, management considered the make-up of assets and liabilities (loan and deposit composition), scarcity value, capital ratios, market share, credit quality, control premiums, the type of financial institution, its overall size, the various markets in which the institution conducts business, as well as, profitability. Based upon the results of this analysis, using discounted cash flow as well as change in control valuation methods, management concluded that goodwill had suffered no impairment at December 31, 2008. Bank stocks traded in a relatively wide range during 2008 and the Company’s stock price has been more volatile during this period, but management believes the decline or rise in its stock price is reflective of general market factors affecting the banking industry as a whole and is unrelated to goodwill impairment. Management will continue to periodically test goodwill for impairment, and during this period of economic stress and uncertainty, this could result in a future determination that goodwill is impaired.

The Company’s highly visible local market orientation and strong local deposit base, combined with a wide range of products and services and favorable demographics, provides the Company with a wide range of opportunities to increase sales volumes, both to existing and prospective customers, resulting in increasing profitability in these markets over the long term.

Contingent Liabilities

The Company is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, tax and other claims arising from the conduct of our business activities. These proceedings include actions brought against the Company and/or our subsidiaries with respect to transactions in which the Company and/or our subsidiaries acted as a lender, a financial advisor, a broker or acted in a related activity. Accruals are established for legal and other claims when it becomes probable the Company will incur an expense and the amount can be reasonably estimated. The Company’s management, together with attorneys, consultants and other professionals, assesses probability and estimates of any amounts involved in a contingency. Throughout the life of a contingency, the Company or our advisors may learn of additional information that can affect our assessments about probability or about the estimates of amounts involved. Changes in these assessments can lead to changes in recorded reserves. In addition, the actual costs of resolving these claims may be substantially higher or lower than the amounts reserved for those claims.

Results of Operations

Net Interest Income

Net interest income (on a fully taxable equivalent basis) for 2008 totaled $77,517,000, $7,254,000 or 8.6 percent lower than for 2007. During 2008, unrecognized interest on loans placed on nonaccrual of

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$9,435,000 was the primary contributor to the decline from the prior year (see “Table 14 — Nonperforming Assets”). Net interest margin on a tax equivalent basis decreased 34 basis points over the last twelve months to 3.58 percent in 2008.

The following table details net interest income and net interest margin (on a tax equivalent basis) for the past five quarters:

	Net Interest Income		Net Interest Margin
	(Dollars in thousands)
Fourth quarter 2007	$	20,724		3.71	%
First quarter 2008		20,562		3.74
Second quarter 2008		20,234		3.69
Third quarter 2008		19,186		3.57
Fourth quarter 2008		17,535		3.32

The Company has operated in a more challenging lending environment with unrecognized interest on loans placed on nonaccrual and declines in interest rates being the primary contributors to weaker net interest income and net interest margin in the third and fourth quarter of 2007, as well as each quarter during 2008.

The composition or mix of earning assets was very similar year over year. For 2008, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 84.2 percent, slightly lower when compared to 84.5 percent a year ago. Average securities as a percent of average earning assets decreased to 13.5 percent for 2008 compared to 14.1 percent for 2007 and federal funds sold and other investments increased to 2.3 percent from 1.4 percent for 2007. In addition to average total loans decreasing slightly as a percentage of earning assets, the mix of loans changed slightly as well, with commercial and commercial real estate volumes representing 58.4 percent of total loans at December 31, 2008 (compared to 62.2 percent a year ago at December 31, 2007) and lower yielding residential loan balances (including home equity loans and lines, and individual residential construction loans representing 37.2 percent of total loans versus 33.2 percent a year ago) (see “Loan Portfolio”). The dramatic reduction in interest rates during 2008, with the Federal Reserve lowering the target federal funds rate to 0 to 25 basis points and the Treasury yield curve shifting lower, will likely limit opportunities to invest at higher interest rates prospectively unless loan demand improves.

The yield on earning assets for 2008 was 5.89 percent, 106 basis points lower than for 2007 and a reflection of the declining interest rate environment and increase in nonaccrual loans (see “Nonperforming Assets”). The Federal Reserve decreased interest rates 100 basis points between September 2007 and the end of 2007, and an additional 400 basis points from year-end 2007 to the end of December 2008. The following table details the yield on earning assets (on a tax equivalent basis) for the past five quarters:

	4th Quarter			3rd Quarter			2nd Quarter			1st Quarter			4th Quarter
	2008			2008			2008			2008			2007
Yield		5.45	%		5.78	%		5.89	%		6.40	%		6.71	%

The yield on loans declined 118 basis points to 6.12 percent over the last twelve months for the same reasons noted above. The yield on investment securities was nominally higher, increasing 1 basis point year over year to 5.03 percent. The investment portfolio at the beginning of the second quarter of 2007 was restructured when approximately $225 million in securities with an average yield of 3.87 percent were sold and reinvested at higher rates. As previously noted, interest rates have declined since then and principal pay-downs and maturities reinvested have been at lower rates. Federal funds sold (and other investments) yielded 2.46 percent for 2008, lower when compared to 5.47 percent a year ago for 2007.

Average earning assets for the entire year 2008 decreased nominally, by $0.2 million compared to 2007. Average loan balances over the same period decreased $6.9 million, or 0.4 percent, to $1,821.7 million, average federal funds sold and other investments increased $20.0 million to $49.8 million, and average investment securities were lower, decreasing $13.3 million, or 4.4 percent, to $292.4 million. Overall, total average assets remained about the same year over year, decreasing by $13.2 million or 0.6 percent during 2008.

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However, period end loan growth during 2008 was much slower and in fact declined from the prior year, with total loans outstanding decreasing year over year by $221.7 million, or 11.7 percent, compared with an increase of $165.3 million, or 9.5 percent for the year ended December 31, 2007. Commercial and commercial real estate loan production for 2008 totaled $117 million, with $8 million in the fourth quarter, $33 million in the third quarter, $19 million in the second quarter and $57 million on the first quarter. Loan demand remains weak. Economic conditions in the markets the Company serves are expected to continue to be challenging in 2009, and the Company expects negative loan growth. At December 31, 2008, the Company’s total commercial and commercial real estate loan pipeline was $127 million.

The Company defines commercial real estate in accordance to the guidance on “Concentrations in Commercial Real Estate Lending” (the “Guidance”) issued by the federal bank regulatory agencies in 2006, which defines commercial real estate (“CRE”) loans as exposures secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (that is, loans for which 50% or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to REITs and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the Guidance. Loans on owner occupied CRE are generally excluded.

The Company, as a TARP capital recipient, is encouraged to demonstrate and report its lending activities as a result of TARP funding. On November 12, 2008, the bank regulatory agencies issued a statement encouraging banks to, among other things, “lend prudently and responsibly to creditworthy borrowers” and to “work with borrowers to preserve homeownership and avoid preventable foreclosures.” The Company continues to lend and has expanded our mortgage loan originations. The future demands for additional lending are unclear and uncertain.

Closed residential mortgage loan production for 2008 totaled $105 million, with production by quarter as follows: fourth quarter 2008 production of $23 million, of which $10 million was sold servicing released, third quarter 2008 production of $22 million, of which $8 million was sold servicing released, second quarter 2008 production of $30 million, with $18 million sold servicing released, and first quarter 2008 production of $30 million, with $14 million sold servicing released. Demand for residential real estate mortgages remained weak during 2008.

During 2008, maturities of securities totaled $45.5 million (including $22.9 million in pay-downs), security sales totaling $14.0 million were transacted, and security purchases totaled $101.1 million. The sales were transacted during 2008 for a gain of $355,000. Purchases of securities during 2008 have been conducted principally to provide collateral against government deposits and repurchase agreements in connection with deposit account sweep arrangements for pledging requirements and to reinvest funds from the security sale, maturities and pay-downs. During 2007, maturities of securities totaled $77.7 million (including $40.4 million in pay-downs), securities sales totaling $253.8 million were transacted (principally due to the portfolio restructuring in April 2007), and security purchases totaled $219.0 million. Due to the ongoing inverted yield curve and other economic challenges in 2007, the Company determined it was in the best interest of shareholders to restructure its balance sheet by selling low yielding securities and paying off overnight borrowings. As a result, management identified approximately $225 million in securities which had an average yield of approximately 3.87 percent and sold them in April 2007. This was after the Company had recognized losses for other-than-temporary impairment of $5.1 million ($3.7 million net of income taxes) at March 31, 2007. Subsequent purchases of securities during the second quarter of 2007 reflected management’s intent to improve the overall yield of the securities portfolio.

For 2008, average total deposits increased $17.5 million, or 0.9 percent, compared to 2007’s average balance. Deposit growth during 2008 was particularly difficult given the economic environment. While deposit growth during the summer and fall is historically challenging due to seasonal declines, deposit growth was stronger than expected due to the Company instituting a focused retail deposit growth strategy earlier in 2008. Consumer deposit growth in most of the Company’s markets was stronger than expected, with a total of 7,387

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new households for the year, an increase of 11.6 percent compared to the prior year. Services per household increased as well, by 17 percent compared to 2007, which management believes will improve customer retention prospectively. Offsetting this success, business deposit growth was weaker due to the economic slowdown and deposit declines in the Company’s Central Florida region, and lower deposit balances for local municipalities and governmental agencies that maintain significantly higher balances from November to April each year. In total, ending deposit balances at December 31, 2008 were lower year over year by $176.9 million, or 8.9 percent, of which $195.5 million was attributable to business deposit declines in the Central Florida region and another $137 million was transferred from public fund deposits to sweep repurchase agreements in an effort to reduce FDIC insurance costs.

As a result of retail promotional efforts, the average balance for lower cost interest bearing deposits (NOW, savings and money market) continues to represent a significant component, favorably affecting the Company’s net interest margin,. These deposits totaled 57.9 percent of average total interest bearing deposits during 2008, versus 59.6 percent a year ago. Average certificates of deposit (CDs) (a higher cost component of interest bearing deposits) increased to 42.1 percent of interest bearing deposits from 40.4 percent a year ago. The recent turmoil in financial markets (stocks, bonds, etc.) and declines in market interest rates have incented customers to seek safety in FDIC insurance coverage bank CDs that are FDIC insured, and which have higher interest rates than transaction accounts. On July 1, 2008, Seacoast National joined the Certificate of Deposit Registry program (“CDARs”) whereby our customers can have their deposits safely insured beyond the FDIC deposit insurance limits. This benefited our deposit retention efforts during the recent financial market disruption and provided a new product offering to homeowners’ associations concerned with FDIC insurance coverage. Public fund deposits may factor in prospective deposit growth as well, since local governmental bodies and municipalities that previously maintained funds with the State of Florida may decide to place these funds with local banks instead, as a result of the collapse in early 2008 of a collective investment pool operated by the State of Florida for governmental agencies and municipalities.

Slowing activity in the residential real estate market (resulting in declining title company, law firm and escrow deposits), as well as completed commercial real estate construction projects (and associated escrow deposits being depleted at the end of construction), contributed to a decline in noninterest bearing deposits. Average CDs (a higher cost component of interest bearing deposits) increased as a percentage of interest bearing deposits over the past 12 months, reflecting customers depositing more funds into CDs while maintaining lower average balances in savings and other liquid deposits that pay no interest or a lower interest rate. Average balances for CDs increased by $121 million to $738 million for the fourth quarter of 2008 compared to the same period in 2007. Offsetting the impact of this trend, the average rate paid in the fourth quarter of 2008 for CDs was 3.59 percent, 123 basis points lower than the rate paid for the same period in 2007. With the Federal Reserve lowering interest rates and providing further market liquidity in the fourth quarter, it is anticipated that net interest income will benefit in 2009 from deposit costs declining, beginning in the first quarter.

The Emergency Economic Stability Act of 2008 (“EESA”) temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor from October 14, 2008 through December 31, 2009. Under the FDIC’s newly established TLG program, the entire amount in eligible noninterest bearing transaction accounts will be guaranteed by the FDIC to the extent such balances are not covered by FDIC insurance. Seacoast National has chosen to participate in the TLG program to offer the best possible FDIC coverage to its customers. The TLG noninterest bearing transaction account guarantee is backed by the full faith and credit of the United States.

Overall, average short-term borrowings (including federal funds purchased, but principally sweep repurchase agreements with customers of Seacoast National) of $91.1 million over 2008 were lower at 5.1 percent of interest bearing liabilities for 2008, versus 8.6 percent for 2007. The Company did not rely on federal funds purchased during 2008 because of better deposit growth, particularly during the second and third quarters of 2008 than we have had in past years. During 2008, federal funds purchased comprised a nominal amount of short-term borrowings, averaging only $4.0 million for the year.

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Average other borrowings for 2008 increased by $41.6 million, or 53.9 percent, to $118.8 million when compared to the average balance for 2007. The increase in the average balances reflected two advances from the Federal Home Loan Bank of Atlanta (“FHLB”) of $25 million each added on September 25, 2007 and November 27, 2007, respectively, with fixed rates of 3.64 percent and 2.70 percent. The borrowings are convertible to a variable rate on a quarterly basis at the discretion of the FHLB, and the Company has the option to repay the borrowing without penalty or charges if the FHLB elects to convert (see “Note I — Borrowings” to the Company’s financial statements). The funds were used to purchase agency securities for pledging purposes.

The cost of interest-bearing liabilities in 2008 decreased 100 basis points to 2.78 percent from 2007, primarily as a result of the Federal Reserve’s decreases in short-term interest rates in 2007 and 2008. With many of the Company’s deposit products re-pricing, we expect that the prospective cost for interest bearing liabilities should be lower, offset to a certain extent by increases and proposed increases in the cost of FDIC insurance and guarantees. During 2008, approximately $529 million of the Company’s certificates of deposit matured and $639 million will mature in 2009. The following table details the cost of interest bearing liabilities for the past five quarters:

	4th Quarter			3rd Quarter			2nd Quarter			1st Quarter			4th Quarter
	2008			2008			2008			2008			2007
Rate		2.52	%		2.64	%		2.68	%		3.26	%		3.71	%

The average aggregate balances for NOW, savings and money market deposits increased $15.8 million, or 1.8 percent, to $917.6 million for 2008 compared to 2007, noninterest bearing deposits decreased $56.0 million, or 15.6 percent, to $302.6 million and average CDs increased $57.6 million, or 9.4 percent, to $668.1 million. Company management believes its market expansion and branding efforts and retail deposit growth strategies are producing new relationships and core deposits. Reductions in nonperforming assets are expected to favorably affect future net interest margin, and success with retail deposit growth may also have a positive impact.

Net interest income (on a fully taxable equivalent basis) for 2007 totaled $84,771,000, which was $4,523,000, or 5.1 percent, less than for 2006. During 2007, unrecognized interest on loans placed on nonaccrual of $2,206,000 contributed to the decline from the prior year, as well as unfavorable changes occurring in deposit mix over 2007 due to an inverted yield curve.

Partially offsetting the negative deposit mix in 2007, year over year the mix of earning assets improved. Loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 84.5 percent for 2007, compared to 72.6 percent for 2006, while average securities as a percent of average earning assets decreased from 24.3 percent for 2006 to 14.1 during 2007 and federal funds sold and other investments decreased to 1.4 percent from 3.1 percent over the same period in 2006. In addition to increasing total loans as a percentage of earning assets, the mix of loans improved, with commercial and commercial real estate volumes representing 62.2 percent of total loans at December 31, 2007 (compared to 60.3 percent at December 31, 2006) and lower yielding residential loan balances (including home equity loans and lines and individual residential construction loans) representing 33.2 percent of total loans (versus 34.9 percent at year-end 2006).

Net interest margin on a tax equivalent basis decreased 23 basis points from 2006 to 3.92 percent for 2007. The net interest margin improved in the second quarter of 2007, up 17 basis points from 3.92 percent in the first quarter of 2007, in part reflecting the effect of a restructuring of our investment portfolio during April 2007. The yield on earning assets for 2007 was 6.95 percent, 43 basis points higher than in 2006, reflecting an improving earning assets mix over 2006 and into 2007. Improving loan yields during 2007 due to loan growth and a greater percent of the portfolio in floating rate loans were partially offset by additions to nonaccrual loans that reduced the yield on loans by approximately 12 basis points. The yield on investment securities was improved, increasing 73 basis points from 2006 to 5.02 percent, due primarily to the restructuring of the investment portfolio.

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Average earning assets for 2007 increased $14.4 million, or 0.7 percent compared to 2006. Average loan balances grew $267.9 million, or 17.2 percent, to $1,828.5 million, average federal funds sold and other investments decreased $37.7 million to $29.8 million, and average investment securities were $215.7 million, or 41.4 percent, lower, totaling $305.8 million. Funds derived from securities sold in April 2007 were either reinvested in securities at current rates, utilized to reduce federal funds purchased or invested in federal funds sold. Overall, total average assets remained about the same for 2007 compared to 2006, growing by $9.3 million, or 0.4 percent, during 2007.

The increase in loans during 2007 compared to 2006 was principally in income-producing commercial real estate loans, in part reflecting the Company’s expansion with the addition of full service branch locations in Broward and Brevard County, and loan officer additions in the Treasure Coast, Big Lake and Orlando regions. At December 31, 2007, commercial lenders in the Company’s newer markets (Palm Beach County, Brevard County, Broward County, Orlando, and the Big Lake region) had total outstanding loans of $805 million. At December 31, 2007 the Company’s total commercial and commercial real estate loan pipeline was $381 million and loan production for 2007 totaled $445 million, with $72 million in the fourth quarter, $146 million in the third quarter, $151 million in the second quarter, and first quarter production of $76 million.

Higher mortgage rates, as well as slowing existing home sales in the Company’s markets, dampened demand for residential mortgages during 2007. Closed residential mortgage loan production for 2007 totaled $135 million, with production by quarter as follows: fourth quarter 2007 production of $27 million, of which $9 million was sold servicing released, third quarter 2007 production of $31 million, of which $11 million was sold servicing released, second quarter 2007 production of $42 million, with $22 million sold servicing released, and first quarter 2007 production of $35 million, with $15 million sold servicing released.

Lower cost interest bearing deposits during the fourth quarter of 2007 were 60.6 percent of average interest bearing deposits, compared to 58.3 percent for the third quarter of 2007, 58.8 percent for the second quarter of 2007, and 60.8 percent for the first quarter of 2007. The percentage for the fourth quarter of 2006 was 61.4 percent and for all of 2006 was 63.9 percent. Average CDs (a higher cost component of interest bearing deposits) for the year 2007 were 40.4 percent of average interest bearing deposits compared to 36.1 percent for all of 2006, reflecting the higher interest rate environment and customer shifts to higher yielding CDs.

Average short-term borrowings were higher for 2007, increasing $29,565,000 or 24.8 percent to $148,610,000. Because of expected loan payoffs and cash flows from investment securities during 2007, the Company chose to temporarily rely on short-term borrowings during the first quarter of 2007.

Average other borrowings including junior subordinated debt issued by the Company in connection with trust preferred securities increased by $8.3 million, or 12.1 percent, to $77.2 million. On June 29, 2007, the Company issued $12,372,000 in junior subordinated debentures, and simultaneously paid off a 3-year term loan for $12,000,000 originated on February 16, 2006. The rate on the term loan adjusted quarterly and was based on the 3-month LIBOR plus 130 basis points. The junior subordinated debt was issued to our Delaware statutory trust subsidiary, SBCF Statutory Trust III, which completed a private sale of $12.0 million of floating rate trust preferred securities. The Company has two prior junior subordinated debt issuances, similarly done in conjunction with statutory trust subsidiaries issuing $40.0 million in floating rate trust preferred securities. The rate on the Company’s newest subordinated debt issuance adjusts quarterly, based on the 3-month LIBOR plus 135 basis points. The Company also added two advances from the FHLB as previously described (see “Note I — Borrowings” to the Company’s consolidated financial statements).

The cost of interest-bearing liabilities in 2007 increased 72 basis points to 3.78 percent from 2006, in part due to the Federal Reserve increasing short-term interest rates by 50 basis points during the first and second quarters of 2006. The Federal Reserve lowered rates 50 basis points in September 2007, 25 basis points at the end of October 2007 and 25 basis points in December 2007 and the cost of interest bearing liabilities declined in the fourth quarter 2007. During 2007, approximately $529 million of the Company’s certificates of deposit matured.

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The average aggregate balances for NOW, savings and money market balances decreased $38.5 million, or 4.1 percent, to $901.8 million for 2007 compared to 2006, noninterest bearing deposits decreased $87.9 million, or 19.7 percent, to $358.6 million, and average CDs increased by $80.3 million, or 15.1 percent, to $610.4 million. The decline in noninterest bearing deposits was principally due to lower title company and escrow deposits as fewer real estate transactions occurred and commercial real estate construction projects were completed.

Noninterest Income

Noninterest income, excluding gains and losses from the sale of securities, totaled $21,565,000 for 2008, $3,345,000, or 13.4 percent, lower than for 2007. For 2007, noninterest income of $24,910,000 was $1,797,000, or 7.8 percent, higher than for 2006 (excluding the gain on sale of a partnership interest). Noninterest income, as defined above, accounted for 21.8 percent of total revenue (net interest income plus noninterest income, excluding securities gains or losses) in 2008 compared to 22.8 percent a year ago.

For 2008, revenues from the Company’s financial services businesses decreased year over year, by $1,069,000, or 19.4 percent, and were lower in 2007 than for 2006 by $350,000, or 6.0 percent. Of the $1,069,000 decrease, trust revenue was lower by $231,000, or 9.0 percent and brokerage commissions and fees were lower by $838,000, or 28.6 percent. Included in the $838,000 decline in brokerage commissions and fees was a decline of $646,000 in revenue from insurance annuity sales year over year reflecting the lower interest rates in 2008 compared to 2007, a $123,000 reduction in mutual fund commissions, and a decrease in brokerage commissions of $39,000. Lower inter vivos trust and agency fees were the primary cause for the decline in trust income, decreasing by $100,000 and $106,000, respectively, from 2007, as well as fewer estate settlements, resulting in a $29,000 decline in fees from 2007. In comparison, for 2007, trust revenue was lower by $283,000, or 9.9 percent, and brokerage commissions and fees were lower by $67,000, or 2.2 percent, compared to 2006’s performance. While revenues from wealth management services generally improved during 2006 as customers returned to the equity markets, revenue generation was challenging in 2007 due to higher interest rate deposit products offered as an alternative. Economic uncertainty and declines in asset values were the primary issue affecting clients of the Company’s wealth management services during 2008 and likely will continue to affect these services in 2009. The Company continues to believe it can be successful and expand its customer relationships through sales of investment management and brokerage products including insurance, once the economy improves.

Service charges on deposits in 2008 were $325,000, or 4.2 percent, lower year over year versus 2007, with overdraft income lower by $257,000. Service charges on deposits in 2007 were $930,000, or 13.7 percent, higher year over year versus 2006, with overdraft fees higher by $959,000, or 18.9 percent, for 2007, versus 2006. Overdraft fees represented approximately 78 percent of total service charges on deposits for both 2008 and 2007. Growth rates for remaining service charge fees on deposits have been lower, as the trend over the past few years is for customers to prefer deposit products which have no fees or where fees can be avoided by maintaining higher deposit balances.

During 2008, fees from the non-recourse sale of marine loans originated by our Seacoast Marine Division decreased $561,000, or 19.6 percent, compared to 2007, after increasing $156,000, or 5.8 percent, in 2007 compared to 2006’s results. Seacoast Marine Finance originated $143 million in loans during 2008, comprised of $20 million in the fourth quarter of 2008, $24 million during the third quarter of 2008, and $55 million and $44 million in the second and first quarters of 2008, respectively. This compares to loan production of $186 million during 2007 and $153 million during 2006. Of the loans originated, $142 million (99.3%), $160 million (86.0%), and $148 million (96.7%) were sold during 2008, 2007 and 2006. Marine loan production was very good during 2007, considering higher oil prices dampened demand, along with higher insurance costs after 2004’s and 2005’s hurricanes. However, as economic conditions deteriorated significantly during 2008, attendance at boat shows by consumers, manufacturers, and marine retailers was lower than in prior years, and as a result loan volumes were lower and are predicted to continue to be lower in 2009. The boating industry is contracting, with a number of manufacturers consolidating or predicted to consolidate. Seacoast Marine Finance is headquartered in Ft. Lauderdale, Florida with lending professionals in Florida and

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California. The production team in California is capable of not only serving California, but Washington and Oregon as well.

Greater usage of check or debit cards over the past several years by core deposit customers and an increased cardholder base has increased our interchange income. For 2008, debit card income increased $147,000, or 6.4 percent, from a year ago, and was $157,000, or 7.3 percent, higher in 2007 than 2006. Other deposit-based electronic funds transfer (“EFT”) income decreased $92,000, or 20.4 percent, in 2008, after having increased $30,000, or 7.1 percent, in 2007 compared to 2006. Debit card and other deposit based EFT revenue is dependent upon business volumes transacted, as well as the amplitude of fees permitted by VISA^® and MasterCard^®. During 2008, fees from non-customers utilizing Seacoast National’s ATMs decreased, likely reflecting the economic recession and fewer visitors to Florida during 2008.

Merchant income for 2008 was $442,000, or 15.6 percent, lower compared to one year earlier, reflecting slower economic activity in the Company’s markets. For 2007, merchant income was $296,000, or 11.6 percent, higher versus 2006’s result. The Company’s expansion into new markets in the past few years positively impacted merchant income, but continued economic weakness and its impact on customer spending (particularly during the third and fourth quarter of 2008) has more than offset the positive impacts of increased account acquisitions. Merchant income historically has been highest in the first quarter each year, reflecting seasonal sales activity.

A key revenue component for the Company is the production of residential mortgage loans in its markets, with loans processed by commission employees of Seacoast National. Many of these mortgage loans are referred by the Company’s branch personnel. Mortgage banking fees for 2008 decreased $291,000, or 20.7 percent, from 2007, but were $278,000, or 24.6 percent, higher in 2007 compared to 2006. Mortgage banking revenue as a component of overall noninterest income was diminished, comprising 5.2 percent of noninterest income for 2008, compared to 5.7 percent for all of 2007, and 4.9 percent, for 2006, and reflecting the ongoing downturn in the real estate market and general economic recession. Sales of residential loans in 2008 totaled $50 million, versus $56 million in 2007 and $49 million in 2006. Mortgage revenues are dependent upon favorable interest rates, as well as good overall economic conditions, including the volume of new and used home sales. Residential real estate transaction activity has improved modestly since mid-2008. Fee income during 2007 was greater than 2006, with some of the weakness in the real estate market offset by higher production related to refinance activities and expanded market share. The Company may have opportunities in markets it serves in 2009 as tighter credit and capital have limited the ability of some competitors to handle transactions, and the Company recently began offering FHA loans, a product previously not offered. Decreases in market rates for mortgages as a result of declines in interest rates and actions by the Federal Reserve, the Treasury and the mortgage government sponsored enterprises may stimulate values and result in increased mortgage revenue also.

Fair value adjustments on foreclosed properties and repossessed assets and losses on sales of foreclosed property resulted in reductions to other income of $677,000 during 2008, compared to negligible losses in prior years.

After signing a lease for banking facilities in 2002, the Company invested in a partnership to construct a high-rise building with 67,500 square feet of rentable space in 2004 for its corporate headquarters in Palm Beach County, which opened in May 2006. The Company’s investment represented 10 percent of total funds contributed to the partnership. In November 2006, the partnership was dissolved upon settlement of the sale of the building. As a result, the Company recorded a $1,147,000 gain which was recognized during the fourth quarter of 2006.

Noninterest Expenses

The Company’s overhead ratio has typically been in the low 60’s in prior years. However, lower earnings in 2008 and 2007 resulted in this ratio increasing to 77.7 percent and 69.4 percent, respectively, compared to 63.3 percent for 2006. When compared to 2007, noninterest expenses for 2008 increased by $791,000, or 1.0 percent, to $78,214,000, compared to an increase of $4,378,000, or 6.0 percent, in 2007. Of the $4,378,000

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increase in 2007 from 2006, noninterest expenses for the acquisition of Big Lake totaled $1,480,000 during the first quarter of 2007; excluding this, noninterest expenses increased 4.0 percent for 2007 versus 2006.

For 2008, the primary causes for the increase in noninterest expenses were legal and professional fees (primarily associated with loan collection efforts) increasing $1,592,000 and FDIC insurance costs that were $1,803,000 greater when compared to 2007, a result of increased charges by the FDIC to restore the Deposit Insurance Fund. The Company believes that the higher level of legal costs experienced during 2008, and particularly more recently, should begin to decline in 2009, as the majority of loans which have accounted for the elevated expense levels during 2008 are now further along in the collection process. In addition, loan sales completed over the latter part of 2008 should result in lower collection costs prospectively. However, FDIC deposit insurance and TLG assessments are expected to be considerably higher in 2009.

The Company also undertook a comprehensive review of its expense structure during the fourth quarter of 2008 and developed a plan to reduce expenses by $7.6 million on an annualized basis during 2009. Reductions totaling $5.0 million have been implemented and were effective as of January 1, 2009. These savings will be partially offset by higher FDIC insurance premiums and TLG assessments during 2009, which are expected to be substantially higher due to increases in charges for FDIC insurance and the full year’s cost of the FDIC’s TLG guarantee of noninterest bearing transaction accounts compared with 2008. See “FDIC Insurance Assessments.”

The Company has other cost-saving measures that are currently under consideration and which will be communicated with our quarterly earnings releases during 2009. The expense reductions for 2009 include the elimination of bonus compensation for most positions and profit sharing contributions for all associates, reductions in matching contributions associated with salary savings plans, lower credit related costs, executive retirements, job eliminations, branch consolidation[s], freezing of executive salaries and board compensation, and reduced salary increases for other associates. Executive cash incentive compensation was not paid in 2008 and is not anticipated to be paid in 2009.

As a recipient of the Treasury’s TARP Capital Purchase Program funding, the Company is also subject to various limitations on senior executive officers’ compensation pursuant to EESA and The American Recovery and Reinvestment Act of 2009 (the “ARRA”). Under EESA, the Company must adopt the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds the equity issued pursuant to the Purchase Agreement (the “TARP Assistance Period”), including the common stock which may be issued pursuant to the Warrant issued by the Company to the Treasury. These standards generally apply to the Company’s chief executive officer, chief financial officer and the three next most highly compensated senior executive officers. The standards include:

•  ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;

•  required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate;

•  prohibition on making golden parachute payments to senior executives; and

•  an agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

In particular, the change to the deductibility limit on executive compensation may increase the overall cost of our compensation programs in future periods. Since the warrant has a 10 year term, we could potentially be subject to the executive compensation and corporate governance restrictions for 10 years under the TARP Capital Purchase Program. The ARRA imposed further limitations on compensation during the TARP Assistance Period including:

•  a prohibition on making any golden parachute payment to a senior executive officer or any of its next five most highly compensated employees;

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•  a prohibition on any compensation plan that would encourage manipulation of the reported earnings of the Company to enhance the compensation of any of its employees; and

•  a prohibition of the five highest paid executives from receiving or accruing any bonus, retention award, or incentive compensation (“bonus”) unless the bonus (a) does not fully vest during the TARP Assistance Period; (b) has a value not greater than one-third of the total amount of annual compensation of the employee receiving the stock; and (c) is subject to such other terms and conditions as the Treasury Secretary may determine are in the public interest. The prohibition may expand to other employees based on the aggregate value of financial assistance that we receive in the future. For example, if we receive at least $250 million but less than $500 million in financial assistance, the senior executive officers and at least the next 10 most highly compensated employees will be prohibited from receiving or accruing Bonus; and if we receive more than $500 million in financial assistance, the prohibition extends to the senior executive officers and at least the next 20 most highly compensated employees.

For 2007, noninterest expenses in the first quarter included additional spending related to the opening of a loan production office in Broward County and a new branch in Brevard County, as well as several loan officer hires in the Treasure Coast, Palm Beach, and Big Lake markets. During the second quarter of 2007, further investment for the future was made in the Ft. Lauderdale/Broward County, Florida market, with the addition of a team of bankers from a successful nonpublic depository institution. This overhead added a total of approximately $260,000 in expenses in the second quarter of 2007. Other lending personnel additions increased salaries and wages by approximately $100,000 more in the second quarter. During the third quarter of 2007, the Company lowered incentive payouts for senior officers and reduced profit sharing compensation by approximately $1.5 million as a result of lower than expected earnings performance; these savings reduced compensation expense by approximately $500,000 in the fourth quarter of 2007. The Company also engaged a nationally recognized bank consulting firm during 2007 to assist the Company’s board and management with strategic planning and overhead improvement through revenue generation. Consulting fees added approximately $1 million to 2007’s professional fees.

Salaries and wages for 2008 declined by $1,416,000, or 4.5 percent, to $30,159,000 compared to 2007. Reduced headcount (including as a result of branch consolidations in late 2007 and early 2008) and lower commissions and accruals for incentive payments due to lower revenues generated from wealth management and weak commercial lending production were the primary cause for salaries and wages decreasing in 2008 from 2007. As noted above, the Company eliminated incentive payouts for senior officers and reduced profit sharing compensation (see discussion below on employee benefits) as a result of lower than expected earnings performance, and these cost savings will remain in effect until the Company produces meaningful earnings improvements. Full-time equivalent employees totaled 446 at December 31, 2008, compared to 464 at December 31, 2007 and 534 at December 31, 2006. For 2007 versus 2006, salaries and wages increased $2,429,000, or 8.3 percent, to $31,575,000. Included in the increase for 2007 year over year were additional salaries of $678,000 for Big Lake (during the first quarter of 2007), $215,000 in salaries for Brevard County (including the new branch office opened during the first quarter of 2007), and $630,000 in salaries and wages for personnel in Broward County.

Employee benefit costs during 2008 decreased $164,000, or 2.2 percent, to $7,173,000 from 2007, and were only $15,000 higher for 2007 compared to 2006. Group health insurance costs and payroll taxes were lower by $197,000 and $135,000, respectively, for 2008 compared to 2007. Group health insurance costs were lower for 2008 due to a lower amount for health care claims, with fewer participants in the plan for 2008 that offset higher health care costs. Salary matches for the Company’s 401K plan were $175,000 higher in 2008 due to increased participation, but will be lower for 2009 due to the Company’s reduced matching of employee contributions. During 2007, a decrease of $854,000 in profit sharing compensation (which was eliminated for 2007) was partially offset by higher health claims experience during 2007, resulting in a $739,000 increase in group health insurance costs compared to 2006. In addition, payroll taxes and unemployment compensation costs were $130,000 greater for 2007 than 2006, reflecting a larger work force after the acquisition of Big Lake National Bank.

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Outsourced data processing costs increased nominally in 2008, up by only $31,000 compared to 2007 versus a $138,000, or 1.9 percent, increase for 2007 from 2006’s costs. Seacoast National utilizes third parties for its core data processing systems and merchant credit card services processing. Outsourced data processing costs are directly related to the number of transactions processed. Outsourced data processing costs can be expected to increase as the Company’s business volumes grow and new products, such as bill pay, internet banking, etc., become more popular. Telephone and data line expenditures, including electronic communications with customers and between branch locations and personnel, as well as third party data processors, have been relatively stable costs, decreasing by $9,000 in 2008 to $1,896,000 after increasing $69,000, or 3.8 percent, for 2007 when compared to 2006 (including the incremental first quarter impact in 2007 of the Big Lake National Bank acquisition that added six Florida counties to the Company’s market footprint).

Occupancy and furniture and equipment expenses during 2008, on an aggregate basis, increased $593,000, or 5.6 percent, year over year, versus a $582,000, or 5.8 percent, increase in 2007. These expenses were reduced in 2008 by the sale of certain assets (including leasehold improvements) at the closed Wal-Mart locations, netting the Company approximately $90,000 more than carrying value of assets sold; partially offset by, additional write-offs of furniture and equipment totaling $60,000 during 2008. Lease payments for bank premises increased $310,000 compared to 2007, partially offset by a $148,000 decrease in maintenance, repairs and upkeep expenditures. Depreciation increased $267,000 in 2008, reflecting the addition of newer offices, as well as furniture and equipment acquired over the past 12 months. Higher utilities (electricity and water) and real estate taxes aggregating to $88,000 were the primary contributors for most of the remaining increase in 2008 expenses, compared to 2007. Included in 2007’s results were additional costs for Big Lake National Bank of $249,000 for the first quarter of 2007 versus 2006.

Additional marketing expenses were incurred during 2008 to support the Company’s new retail core deposit growth strategy that began in February 2008, but were more than offset by reductions in other marketing costs. Marketing expenses, which encompass sales promotion costs, ad agency production and printing costs, newspaper and radio advertising, and other public relations costs associated with the Company’s efforts to market products and services, decreased by $461,000, or 15.0 percent, in 2008, compared to a $1,284,000, or 29.5 percent, decrease in 2007 versus 2006. Contributing to the decrease for 2008, media advertising costs, public relations expenditures, and donations, were $191,000, $115,000 and $121,000 lower, respectively, and market research, direct mail and business meals and entertainment expenditures were less than the prior year by $34,000, $37,000 and $54,000, respectively. Partially offsetting this decrease, aggregate production and printing costs increased $82,000. Contributing to the decrease in 2007 from 2006 was a reduction in donations of $210,000, as well as decreased ad agency costs related to production and printing, newspaper and radio advertising, direct mail campaigns, and public relations totaling $767,000. In addition, sales promotions, market research, and business meals and entertainment were lower by $123,000, $80,000 and $95,000, respectively, in 2007 compared to 2006. Marketing costs in 2007 were focused on advertising and promotion to attract customers of the Company’s two largest community bank competitors, which were acquired and integrated by a regional bank, but 2008 provided opportunity to focus as well on differentiating the Company’s brand, new retail core deposit growth strategy, and perceptions of quality customer service, particularly in light of turmoil in the banking industry. Further reductions in marketing expenses are not likely for 2009.

Legal and professional fees increased $1,592,000, or 39.1 percent, to $5,662,000 for 2008, compared to a $1,278,000, or 45.8 percent, increase in 2007 compared to 2006. Legal fees were $2,029,000 higher during 2008 than in 2007, the primary cause being problem asset resolution. Increasing as well during 2008 were fees paid to the OCC, Seacoast National’s primary regulator, which were $164,000 higher. Other professional fees were lower by $612,000 for 2008, most of which was attributable to additional costs in 2007 for assistance from a nationally known consultant assisting the Company’s Board of Directors and management with its review of processes, operations and costs, as well as strategic planning. The $1,278,000 increase in these expenses for 2007 in comparison to 2006, was mostly caused by $1,078,000 of other professional fees, including the consulting fees previously mentioned, and $319,000 to legal fees, partially offset by lower OCC examination fees of $60,000 and certified public accountant fees of $59,000. Legal fees should be lower for 2009.

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The FDIC insurance premiums were reformulated for 2007 and increased as much as $1 million but were more than offset by a one-time credit for FDIC premiums previously paid that totaled $1,240,000. The Company exhausted the full benefit of this one-time credit in 2007 and early 2008, with an additional $1,803,000 expensed for FDIC insurance premiums during 2008. The FDIC has announced further increases in premium rates for 2009 in light of bank failures and FDIC assessments for 2009 described more fully in “FDIC Insurance Assessments” and proposed a 20 basis points special assessment to be collected at the end of the third quarter of 2008. We also currently are paying 10 basis points per annum under the FDIC TLG noninterest bearing transaction account guarantee program, through 2009. These FDIC charges will substantially increase our deposit costs. See “FDIC Insurance Assessments.”

Remaining noninterest expenses decreased $1,178,000 in 2008, or 12.0 percent, to $8,678,000, but were higher in 2007 by $1,055,000, or 12.0 percent, at $9,856,000. Benefiting 2008 was a $72,000 reversal of an accrual for the Company’s portion of Visa^® litigation and settlement costs (originally recorded in the fourth quarter of 2007), a result of the successful Visa^® initial public offering eliminating the need for the accrual. Also decreasing year over year during 2008 were costs for postage, courier and delivery (down $157,000), stationery, printing and supplies (down $85,000), bank paid closing costs (down $523,000, because home equity line costs have been more limited), subcontractor/broker fees for marine loan production (down $262,000), employment placement costs (down $354,000 as a result of reduced headhunter fees), reduced charge-offs related to robbery and customer fraud (down $237,000), education, tuition and conference expenses (down $105,000), and certain other expenses deemed non-recurring (down $333,000, including a reduction in the Company’s reserve for unfunded commitments). Partially offsetting these declines during 2008 were increases year over year for foreclosed and repossessed asset management costs (up $515,000, principally related to real estate taxes on foreclosed properties), appraisal fees (up $263,000 as a result of value assessments) and correspondent bank clearing charges (up $189,000 lower analysis credits provided for compensating balances in the lower interest rate environment make the payment of hard charges more sensible). Larger increases year over year for 2007 compared to 2006 were costs for postage, courier and delivery (up $147,000 on an aggregate basis), employee placement fees (up $325,000), bank paid loan closing costs (up $320,000), subcontractor/broker fees related to marine loan production (up $173,000), and foreclosed and repossessed asset management costs (up $174,000).

Interest Rate Sensitivity

Fluctuations in interest rates may result in changes in the fair value of the Company’s financial instruments, cash flows and net interest income. This risk is managed using simulation modeling to calculate the most likely interest rate risk utilizing estimated loan and deposit growth. The objective is to optimize the Company’s financial position, liquidity, and net interest income while limiting their volatility.

Senior management regularly reviews the overall interest rate risk position and evaluates strategies to manage the risk. The Company has determined that an acceptable level of interest rate risk would be for net interest income to fluctuate no more than 6 percent given a parallel change in interest rates (up or down) of 200 basis points. The Company’s most recent Asset and Liability Management Committee (“ALCO”) model simulation indicates net interest income would decrease 1.4 percent if interest rates gradually rise 200 basis points over the next 12 months and 0.3 percent if interest rates gradually rise 100 basis points. The model simulation indicates net interest income would increase by 1.5 percent over the next 12 months given a gradual decline in interest rates of 100 basis points.

The Company had a negative gap position based on contractual and prepayment assumptions for the next 12 months, with a negative cumulative interest rate sensitivity gap as a percentage of total earning assets of 19 percent at December 31, 2008 (see “Table 19 — Interest Rate Sensitivity Analysis”), compared to a negative gap of 20.3 percent a year ago.

The computations of interest rate risk do not necessarily include certain actions management may undertake to manage this risk in response to changes in interest rates. Derivative financial instruments, such as interest rate swaps, options, caps, floors, futures and forward contracts may be utilized as components of the Company’s risk management profile.

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Market Risk

Market risk refers to potential losses arising from changes in interest rates, and other relevant market rates or prices.

Interest rate risk, defined as the exposure of net interest income and Economic Value of Equity (“EVE”) to adverse movements in interest rates, is the Company’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities). The Company is also exposed to market risk in its investing activities. The ALCO meets regularly and is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. The policies established by the ALCO are reviewed and approved by the Company’s Board of Directors. The primary goal of interest rate risk management is to control exposure to interest rate risk, within policy limits approved by the Board. These limits reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons.

The Company also performs valuation analyses, which are used for evaluating levels of risk present in the balance sheet that might not be taken into account in the net interest income simulation analyses. Whereas net interest income simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows minus the discounted value of liability cash flows, the net of which is referred to as EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. In contrast to the net interest income simulation, which assumes interest rates will change over a period of time, EVE uses instantaneous changes in rates. EVE values only the current balance sheet, and does not incorporate the growth assumptions that are used in the net interest income simulation model. As with the net interest income simulation model, assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected changes in balances and pricing of the indeterminate life deposit portfolios. Based on our most recent modeling, an instantaneous 100 basis point increase in rates is estimated to increase the EVE 4.4 percent versus the EVE in a stable rate environment. An instantaneous 100 basis point decrease in rates is estimated to decrease the EVE 1.3 percent versus the EVE in a stable rate environment.

While an instantaneous and severe shift in interest rates is used in this analysis to provide an estimate of exposure under an extremely adverse scenario, a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon, i.e., the next fiscal year. Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, change in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.

Liquidity Risk Management

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liability, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows.

In the table that follows, all deposits with indeterminate maturities such as demand deposits, NOW accounts, savings accounts and money market accounts are presented as having a maturity of one year or less.

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Contractual Commitments

	December 31, 2008
			One year		Over one year		Over three years
	Total		or less		through three years		through five years		Over five years
	(In thousands)
Deposit maturities	$	1,810,441	$	1,716,839	$	63,587	$	29,965	$	50
Short-term borrowings		157,496		157,496		—		—		—
Borrowed funds		65,302		15,302		—		—		50,000
Subordinated debt		53,610		—		—		—		53,610
Operating leases		35,045		3,503		4,942		4,626		21,974
	$	2,121,894	$	1,893,142	$	68,529	$	34,591	$	125,634

Funding sources primarily include customer-based core deposits, purchased funds, collateralized borrowings, cash flows from operations, and asset securitizations and sales.

Cash flows from operations are a significant component of liquidity risk management and include both deposit maturities and the scheduled cash flows from loan and investment maturities and payments. Deposits are a primary source of liquidity. The stability of this funding source is affected by numerous factors, including returns available to customers on alternative investments, the quality of customer service levels, safety and competitive forces.

We purchase funds on an unsecured basis from correspondent banks and routinely use securities and loans as collateral for secured borrowings. In the event of severe market disruptions, we have access to secured borrowings through the FHLB and the Federal Reserve.

Contractual maturities for assets and liabilities are reviewed to adequately maintain current and expected future liquidity requirements. Sources of liquidity, both anticipated and unanticipated, are maintained through a portfolio of high quality marketable assets, such as residential mortgage loans, securities available for sale and federal funds sold. The Company also has access to borrowed funds such as federal funds and FHLB lines of credit, and during 2008 pledged collateral to the Federal Reserve under its borrower-in-custody program to establish a line of credit through the discount window. The Company is also able to provide short term financing of its activities by selling, under an agreement to repurchase, United States Treasury and Government agency securities not pledged to secure public deposits or trust funds. At December 31, 2008, the Company had available lines of credit of $564 million. The Company also had $28 million of Treasury and Government agency securities and mortgage backed securities not pledged for use under repurchase agreements, and had an additional $152 million in residential and commercial real estate loans available as collateral. At December 31, 2007, the Company had available lines of credit of $335 million and had $47 million of Treasury and Government agency securities and mortgage backed securities not pledged and available for use under repurchase agreements.

Liquidity, as measured in the form of cash and cash equivalents (including federal funds sold and interest bearing deposits), totaled $151,192,000 at December 31, 2008 compared to $98,475,000 at December 31, 2007. The composition of cash and cash equivalents has changed from a year ago. Over the past twelve months cash and due from banks declined $4,488,000, or 8.9 percent, while federal funds sold and interest bearing deposits increased $57,205,000 to $105,190,000. Cash and cash equivalents vary with seasonal deposit movements and are generally higher in the winter than in the summer, and vary with the level of principal repayments and investment activity occurring in the Company’s securities portfolio and loan portfolio.

The Company (on a parent-only basis), is a separate entity from Seacoast National and is limited on its ability to receive dividends from Seacoast National, but is expected to have sufficient resources to meet its scheduled debts through 2009. At December 31, 2008, the Company held cash and short-term securities of $39.2 million compared to $1.9 million at year end 2007, reflecting funding from the Treasury’s TARP Capital Purchase Program received in December 2008. Seacoast National is limited in the amount of dividends it can pay to the Company without prior regulatory approval to not more than current year earnings plus the prior two years’ earnings, less any previously paid dividends, provided that Seacoast National maintains its capital

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adequacy (see “Capital Resources” for details). In 2008 and 2007, Seacoast National paid dividends to the Company that exceeded its earnings in those years. As a result of these losses, Seacoast National cannot currently pay dividends to the Company, without prior OCC approval. The Company also expects to contribute additional capital to Seacoast National to meet the OCC’s requirement that Seacoast National have total risk-based capital of 12.0% beginning March 31, 2009. Additional losses could prolong Seacoast National’s inability to pay dividends available for payment to the Company without regulatory approval. See “Capital Resources”.

Off-Balance Sheet Transactions

In the normal course of business, we engage in a variety of financial transactions that, under generally accepted accounting principles, either are not recorded on the balance sheet or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. These transactions involve varying elements of market, credit and liquidity risk.

The two primary off-balance sheet transactions the Company has engaged in are designed:

•  to manage exposure to interest rate risk (derivatives); and

•  to facilitate customers’ funding needs or risk management objectives (commitments to extend credit and standby letters of credit).

Derivative transactions are often measured in terms of a notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is not usually exchanged, but is used only as the basis upon which interest or other payments are calculated.

The derivatives the Company uses to manage exposure to interest rate risk are interest rate swaps. All interest rate swaps are recorded on the balance sheet at fair value with realized and unrealized gains and losses included either in the results of operations or in other comprehensive income, depending on the nature and purpose of the derivative transaction.

Credit risk of these transactions is managed by establishing a credit limit for counterparties and through collateral agreements. The fair value of interest rate swaps recorded in the balance sheet at December 31, 2008 included derivative product assets of $336,000. In comparison, at December 31, 2007 derivative product assets of $46,000 were outstanding.

Lending commitments include unfunded loan commitments and standby and commercial letters of credit. A large majority of loan commitments and standby letters of credit expire without being funded, and accordingly, total contractual amounts are not representative of our actual future credit exposure or liquidity requirements. Loan commitments and letters of credit expose the Company to credit risk in the event that the customer draws on the commitment and subsequently fails to perform under the terms of the lending agreement.

Loan commitments to customers are made in the normal course of our commercial and retail lending businesses. For commercial customers, loan commitments generally take the form of revolving credit arrangements. For retail customers, loan commitments generally are lines of credit secured by residential property. These instruments are not recorded on the balance sheet until funds are advanced under the commitment. For loan commitments, the contractual amount of a commitment represents the maximum potential credit risk that could result if the entire commitment had been funded, the borrower had not performed according to the terms of the contract, and no collateral had been provided. Loan commitments were $207 million at December 31, 2008, and $351 million at December 31, 2007 (see “Note P — Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

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Income Taxes

The income tax benefit for 2008 was 32.6 percent of the Company’s loss before taxes, compared to provisions for income taxes representing 31.1 percent for 2007’s income before taxes, and 35.2 percent for 2006. (see “Note L — Income Taxes”).

Financial Condition

Total assets decreased $105,438,000, or 4.4 percent, to $2,314,436,000 at December 31, 2008, after increasing $30,439,000 or 1.3 percent to $2,419,874,000 in 2007.

Capital Resources

Table 8 summarizes the Company’s capital position and selected ratios. The Company’s ratio of shareholders’ equity to period end total assets was 9.33 percent at December 31, 2008, compared with 8.86 percent one year earlier; and its tangible common equity ratio was 5.18 percent at December 31, 2008.

The Company and Seacoast National are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal bank regulatory authority may prohibit the payment of dividends where it has determined that the payment of dividends would be an unsafe or unsound practice. The OCC and the Federal Reserve have indicated paying dividends that deplete a national or state member bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. The Company is a legal entity separate and distinct from Seacoast National and its other subsidiaries, and the Company’s primary source of cash and liquidity, other than securities offerings and borrowings, is dividends from Seacoast National. The bank subsidiary did not pay a dividend to the Company for the third and fourth quarter of 2008 and the Company reduced its dividend payment to shareholders to a de minimis quarterly amount of $0.01 beginning in the third quarter of 2008. Prior OCC approval presently is required for any payments of dividends from the bank subsidiary to the Company. A shelf registration statement filed and declared effective in 2008 increased the Company’s flexibility to access the securities markets quickly with a variety of securities, as needed.

In December 2008, the Company sold $50.0 million in Series A Perpetual Preferred Stock and warrant to the Treasury under the TARP Capital Purchase Program, which further strengthened the Company’s already “well-capitalized” status (see “Note N-Shareholders’ Equity” to the Company’s consolidated financial statements). As a result, the Company’s capital position remains strong with a total risk-based capital ratio improving to 14.00 percent at December 31, 2008, from 12.17 percent at December 31, 2007 and December 31, 2006’s reported ratio of 11.70 percent. Under the terms of the agreement with the Treasury, the Company is unable to declare dividend payments on common, junior preferred or pari passu preferred shares if it has not paid all dividends on the Series A Preferred Stock. Further, without the Treasury approval, the Company is not permitted to increase dividends on its common stock above the amount of the last quarterly cash dividend per share declared prior to December 19, 2008, or $0.01, without the Treasury’s approval until December 19, 2011, the third anniversary of the investment, unless all of the Series A Preferred Stock has been redeemed or transferred by the Treasury.

Previously, during 2005 the Company formed two wholly owned trust subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust II, and during 2007 formed an additional wholly owned trust subsidiary, SBCF Statutory Trust III. The subsidiaries in 2005 each issued $20.0 million (a total of $40.0 million) in trust preferred securities and the 2007 subsidiary issued an additional $12.0 million in trust preferred securities, guaranteed by the Company on a junior subordinated basis. The Company obtained the proceeds from the trust’s sale of trust preferred securities by issuing junior subordinated debentures to the trust. Under revised Interpretation No. 46 (FIN 46R) promulgated by the Financial Accounting Standards Board (“FASB”), the trust must be deconsolidated with the Company for accounting purposes. As a result of this accounting pronouncement, the Federal Reserve adopted changes to its capital rules with respect to the regulatory capital treatment afforded to trust preferred securities. The Federal Reserve’s rules permit qualified trust preferred securities and other restricted capital elements to be included as Tier 1 capital up to 25% of core capital, net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these

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revised regulatory capital rules and expects that it will be able to treat its $52.0 million of trust preferred securities as Tier 1 capital. For regulatory purposes, the trust preferred securities are added to the Company’s tangible common shareholders’ equity to calculate Tier I capital.

The Company’s risk based capital ratios are expected to continue to improve due to a decline in risk based asset levels. The Company fully expects its stronger capital base will permit Seacoast National to meet its specified regulatory requirements. The stronger capital base has already allowed the Company to increase its local residential lending in the fourth quarter of 2008. In addition, working with distressed borrowers, the Company entered into various loan restructuring arrangements during the fourth quarter, impacting both retail and commercial customers. The Company expects to continue to prudently explore opportunities to work with customers experiencing distress, as well as increase credit availability to qualified residential homeowners as a result of its improved capital position.

Loan Portfolio

Table 9 shows total loans (net of unearned income) by category outstanding. Supplemental trend schedules with detail regarding line items in the above table have been added to show changes in the composition of loans outstanding by quarter since the end of 2006.

Overall loan growth was negative in 2008, impacted by the unprecedented slowing of residential real estate sales activity in all of the Company’s markets, lower demand for commercial loans in the newer metro markets of Orlando, West Palm Beach and Fort Lauderdale, and the Company’s successful divestiture of residential construction and land development loans (including $38 million and $29 million that were sold during the third and fourth quarters of 2008, respectively). By reducing the Company’s exposure to residential construction and development loans during 2008, our overall risk profile has been improved, which should lead to better earnings performance in future quarters.

Total loans (net of unearned income and excluding the allowance for loan losses) were $1,676,728,000 at December 31, 2008, which was $221,661,000 or 11.7 percent lower than at December 31, 2007. At December 31, 2007, total loans of $1,898,389,000 were $165,278,000 or 9.5 percent higher than at December 31, 2006.

As shown in Table 9, commercial real estate mortgages increased $40,373,000 from December 31, 2007 to $557,705,000 at December 31, 2008 and residential mortgages increased $10,278,000. More than offsetting these increases were declines from year-end 2007 in residential construction and land development loans of $165,183,000 to $129,899,000 (a 21.4% decline) at December 31, 2008, commercial construction and land development loans declined $33,151,000 (13.8%) to $209,297,000, residential construction and lot loans to individuals by $15,990,000 (22.2%) to $56,047,000, commercial and financial loans by $43,390,000 (34.5%) to $82,765,000, and installment loans to individuals decreasing $13,454,000 (15.6%) to $72,908,000 at the end of 2008.

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Construction and land development loans, including loans secured by commercial real estate, were comprised of the following types of loans at December 31, 2008 and 2007:

	December 31
	2008						2007
	Funded		Unfunded		Total		Funded		Unfunded		Total
	(In millions)
Construction and land development*
Residential:
Condominiums	$	17.4	$	0.5	$	17.9	$	60.2	$	19.0	$	79.2
Town homes		6.1		—		6.1		25.0		2.2		27.2
Single family residences		26.8		5.8		32.6		67.4		16.2		83.6
Single family land & lots		52.8		0.5		53.3		108.0		7.9		115.9
Multifamily		26.8		0.6		27.4		34.5		19.3		53.8
		129.9		7.4		137.3		295.1		64.6		359.7
Commercial:
Office buildings		17.3		0.7		18.0		30.9		7.0		37.9
Retail trade		68.7		4.8		73.5		69.0		17.8		86.8
Land		73.3		10.9		84.2		82.6		14.1		96.7
Industrial		13.3		0.4		13.7		13.0		11.0		24.0
Healthcare		—		—		—		1.0		—		1.0
Churches & educational facilities		—		—		—		—		0.5		0.5
Lodging		—		—		—		11.2		3.9		15.1
Convenience stores		—		—		—		1.7		0.1		1.8
Marina		30.7		3.7		34.4		23.1		14.1		37.2
Other		6.0		0.3		6.3		9.9		5.7		15.6
		209.3		20.8		230.1		242.4		74.2		316.6
		339.2		28.2		367.4		537.5		138.8		676.3
Individuals:
Lot loans		35.7		—		35.7		39.4		—		39.4
Construction		20.3		9.6		29.9		32.7		15.7		48.4
		56.0		9.6		65.6		72.1		15.7		87.8
Total	$	395.2	$	37.8	$	433.0	$	609.6	$	154.5	$	764.1

*  Reassessment of collateral assigned to a particular loan over time may result in amounts being reassigned to a more appropriate loan type representing the loan’s intended purpose, and for comparison purposes prior period amounts deemed significant have been restated to reflect the change.

36

The following is the geographic location of the Company’s construction and land development loans (excluding loans to individuals) totaling $339,196,000 and $537,530,000 at December 31, 2008 and 2007, respectively:

	% of Total Construction
	and Land Development Loans
Florida County	2008		2007
St. Lucie		18.2		13.3
Palm Beach		15.1		19.4
Indian River		11.7		18.9
Martin		10.6		15.0
Volusia		7.4		3.4
Brevard		6.7		7.3
Orange		6.6		5.5
Highlands		4.6		2.7
Osceola		3.4		2.9
Dade		3.1		1.0
Miami-Dade		2.8		1.7
Broward		2.1		1.0
Okeechobee		1.9		1.1
Lee		1.4		4.0
Collier		0.9		0.4
Marion		0.9		0.4
Charlotte		0.8		0.9
Bradford		0.8		0.6
Hendry		0.4		0.0
Lake		0.2		0.4
Other		0.4		0.1
Total		100.0		100.0

The Company’s ten largest commercial real estate funded and unfunded loan relationships at December 31, 2008 aggregated to $180.9 million (versus $159.9 million a year ago) and for the top 51 commercial real estate relationships in excess of $5 million the aggregate funded and unfunded totaled $586.6 million (compared to 70 relationships aggregating to $598.8 million a year ago).

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Commercial real estate mortgage loans were comprised of the following loan types at December 31, 2008 and 2007:

	December 31
	2008						2007
	Funded		Unfunded		Total		Funded		Unfunded		Total
	(In millions)
Office buildings	$	146.4	$	2.0	$	148.4	$	131.7	$	2.8	$	134.5
Retail trade		111.9		0.9		112.8		76.2		0.6		76.8
Land		—		—		—		5.3		—		5.3
Industrial		94.7		1.9		96.6		105.5		1.7		107.2
Healthcare		29.2		0.6		29.8		32.4		1.0		33.4
Churches and educational facilities		35.2		—		35.2		40.2		0.2		40.4
Recreation		1.7		0.4		2.1		3.0		0.2		3.2
Multifamily		27.2		0.7		27.9		13.8		1.6		15.4
Mobile home parks		3.0		—		3.0		3.9		—		3.9
Lodging		26.6		—		26.6		22.7		0.2		22.9
Restaurant		6.2		—		6.2		8.2		1.2		9.4
Agriculture		8.5		0.5		9.0		12.9		0.9		13.8
Convenience stores		23.5		—		23.5		23.2		—		23.2
Other		43.6		0.5		44.1		38.3		0.7		39.0
Total	$	557.7	$	7.5	$	565.2	$	517.3	$	11.1	$	528.4

Fixed rate and adjustable rate loans secured by commercial real estate, excluding construction loans, totaled approximately $335 million and $223 million, respectively, at December 31, 2008, compared to $272 million and $245 million, respectively, a year ago.

Residential mortgage lending is an important segment of the Company’s lending activities. The Company has never originated sub-prime, Alt A, Option ARM or any negative amortizing residential loans. Substantially all residential originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. The Company selectively adds residential mortgage loans to its portfolio, primarily loans with adjustable rates. The Company reduced the relative size of the residential loan portfolio over the period from 2004 to 2007 and increased the size of the commercial and commercial real estate loan portfolios.

Exposure to market interest rate volatility with respect to mortgage loans is managed by attempting to match maturities and re-pricing opportunities for assets against liabilities and through loan sales. At December 31, 2008, approximately $329 million, or 68 percent, of the Company’s residential mortgage loan balances were adjustable, compared to $319 million, or 64 percent, a year ago. Loans secured by residential properties having fixed rates totaled approximately $180 million at December 30, 2008, of which 15- and 30-year mortgages totaled approximately $35 million and $60 million, respectively. The remaining fixed rate balances were comprised of home improvement loans, most with maturities of 10 years or less. The Company also has a small home equity line portfolio, which totaled approximately $59 million at December 31, 2008. In comparison, loans secured by residential properties having fixed rates totaled approximately $179 million at December 31, 2007, with 15- and 30-year fixed rate residential mortgages totaling approximately $36 million and $51 million, respectively.

Commercial and financial loans decreased and totaled $82,765,000 at December 31, 2008, compared to $126,695,000 a year ago. Commercial lending activities are directed principally towards businesses whose demand for funds are within the Company’s lending limits, such as small to medium sized professional firms,

38

retail and wholesale outlets, and light industrial and manufacturing concerns. Such businesses are smaller and subject to the risks of lending to small to medium sized businesses including the effects of a sluggish local economy, possible business failure, and insufficient cash flows.

The Company also made consumer loans to individual customers (including installment loans, loans for automobiles, boats, and other personal, family and household purposes, and indirect loans through dealers to finance automobiles) totaling $72,908,000 (versus $86,362,000 a year ago), real estate construction loans to individuals secured by residential properties totaling $20,307,000 (versus $32,718,000 a year ago), and residential lot loans to individuals totaling $35,740,000 (versus $39,319,000 a year ago).

At December 31, 2008, the Company had commitments to make loans of $206,595,000, compared to $351,053,000 at December 31, 2007 (see “Note P — Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

Deposits and Borrowings

Total deposits decreased $176,893,000, or 8.9 percent, to $1,810,441,000 at December 31, 2008 compared to one year earlier. A decrease in business accounts in the central Florida market and a transfer of public fund deposits to sweep repurchase agreements were the cause for a decline in total deposits. Excluding the central Florida region and public fund deposits, new deposits increased $157 million from the period ended December 31, 2007, better reflecting the success the Company has had with its new retail deposit growth plan.

Deposits increased significantly during the fourth quarter of 2007, increasing $131.6 million, or 7.1 percent, a result of seasonal deposit increases and higher average public fund deposit balances due to credit concerns relating to collective investment fund run by the State of Florida. Since year-end 2007, the decline in deposits in large part was due to portions of public fund deposits being placed in sweep repurchases, and the aforementioned deposit declines in the central Florida region. Mitigating these declines, during the first quarter of 2008, the Company instituted a focused retail deposit growth plan which improved deposit growth over the second, third and fourth quarters of 2008.

The Company also joined the CDARs program effective July 1, 2008, to provide large balance depositors access to full insurance coverage for their funds via CDs exchanged between participating FDIC-insured financial institutions. Funds deposited under the CDARs program are required to be classified as brokered deposits on the Company’s balance sheet. The combined deposit growth from these efforts assisted in offsetting seasonal deposit declines that normally occur during the second and third quarters each year, particularly from local municipalities and governmental agencies that maintain significantly higher balances in the fourth and first quarters of each year.

With interest rates higher on CDs, shifts from lower cost (or no cost) transition deposits products and CDs occurred during 2008 as local competitors with higher loan to deposit ratios aggressively increased rates for seeking needed funding for their institutions. During this period of time, Seacoast was more cautious with regards to the pricing of CDs and is content to continue to follow this strategy prospectively, even more so with safety a primary factor for depositors versus higher rates at this time.

During 2007, total deposits increased $96,315,000, or 5.1 percent, to $1,987,333,000 compared to December 31, 2006. CDs increased $33,893,000, or 5.9 percent, to $603,662,000 over the twelve months ended December 31, 2007, lower cost interest bearing deposits (NOW, savings and money markets deposits) increased $126,581,000, or 13.6 percent, to $1,056,025,000, and noninterest bearing demand deposits decreased $64,159,000, or 16.4 percent, to $327,646,000.

Securities sold under repurchase agreements increased over the past twelve months by $69,396,000, or 78.8 percent, to $157,496,000 at December 31, 2008. In comparison, repurchase agreements decreased $54,376,000, or 38.2 percent, to $88,100,000 during 2007. Repurchase agreements are offered by Seacoast National to select customers who wish to sweep excess balances on a daily basis for investment purposes. The number of sweep repurchase accounts decreased from 249 a year ago to 243 at December 31, 2008, but the balances in these accounts increased, as a result of higher amounts of public funds.

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Effects of Inflation and Changing Prices

The consolidated financial statements and related financial data presented herein have been prepared in accordance with U. S. generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money, over time, due to inflation.

Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the general level of inflation. However, inflation affects financial institutions’ increasing cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Mortgage originations and re-financings tend to slow as interest rates increase, and likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.

Securities

Information related to yields, maturities, carrying values and unrealized gains (losses) of the Company’s securities is set forth in Tables 15-18.

At December 31, 2008, the Company had no trading securities, $318,030,000 in securities available for sale (representing 91.9 percent of total securities), and securities held for investment carried at $27,871,000 (8.1 percent of total securities). The Company’s securities portfolio increased $45,172,000 or 15.0 percent from December 31, 2007.

Federal funds sold and interest bearing deposits totaled $105,190,000 and $47,985,000 at December 31, 2008 and 2007, respectively, versus $2,412,000 at December 31, 2006. Federal funds sold and interest bearing deposits were particularly low at year-end 2006, in part due to lower deposit balances related to a slowing in the residential real estate market in late 2006 and funding of loan growth during 2006.

The Company manages its interest rate risk by targeting an average duration for the securities portfolio through the acquisition of securities returning principal monthly that can be reinvested. The duration of the investment portfolio at December 31, 2008 was 40 months, compared to a year ago when the duration was 50 months. With more adjustable prime based loans in its loan portfolio and the increased prospects for lower interest rates, the Company had lengthened the duration of its securities portfolio during 2007.

At December 31, 2008, available for sale securities totaling $318,030,000 had gross losses of $2,838,000 and gross gains of $6,178,000, compared to gross losses of $997,000 and gross gains of $1,495,000 at December 31, 2007. All of the securities with unrealized losses are reviewed for other-than-temporary impairment at least quarterly. As a result of these reviews during 2008, it was determined that no impairment charges related to securities owned with unrealized losses were deemed other than temporarily impaired since the Company has the present intent and ability to retain these securities until recovery.

Company management considers the overall quality of the securities portfolio to be high. The Company has no exposure to securities with subprime collateral and had no Fannie Mae or Freddie Mac preferred stock when these entities were placed in conservatorship. The Company holds no interests in trust preferred securities held by other financial institutions.

Fourth Quarter Review

During the fourth quarter of 2008, the Company’s earnings were impacted by the continued slowdown in the Florida real estate market with growth in nonperforming assets and an elevated provision for loan losses. The fourth quarter net loss was $22.6 million, or $1.19 per average common share diluted, compared to $3.4 million, or $0.18 diluted loss per common share, in the third quarter of 2008 and $1.9 million, or $0.10 diluted earnings per share, in the fourth quarter of 2007. Returns on average assets and equity were

40

-3.99 percent and -45.92 percent for the fourth quarter of 2008, respectively, compared to -0.60 percent and -7.13 percent in the third quarter of 2008, and 0.32 percent and 3.48 percent in the fourth quarter of 2007.

During the fourth quarter of 2008, the Company’s nonperforming assets (excluding restructured loans that are performing) increased $11.7 million to $92.0 million, or 5.5 percent of loans and other real estate owned (“OREO”). Net loan charge-offs in the fourth quarter totaled $33.9 million, compared to $81.1 million for the total year 2008. The provision in the fourth quarter totaled $30,656,000, compared to $3,813,000 a year ago and $10,241,000 in the third quarter of 2008. The majority of nonperforming assets are loans for land and acquisition and development related to the residential market. The Company aggressively collected, charged-off and reduced its concentration in these loans, including sales of these loans of $29 million in the fourth quarter of 2008 and $38 million in the third quarter of 2008. Although significant losses were incurred during 2008 as a result of the Company’s response to deteriorating market conditions, internally criticized loans declined significantly and actions taken should reduce earnings volatility in the future.

Net interest income on a fully tax equivalent basis for the fourth quarter of 2008 was $17,535,000, $1,651,000, or 8.6 percent, lower than for the third quarter of 2008 and $3,189,000, or 15.4 percent, lower than a year ago for the same quarter. The net interest margin for the fourth quarter was 3.32 percent, a decrease from the 3.71 percent achieved in last year’s fourth quarter and a 25 basis point decrease from the 3.57 percent for the third quarter of 2008. The decline in net interest margin resulted from higher average nonaccrual loan balances, lower loan yields in general, and a decline in loan balances, that were partially offset by reduced deposit costs. Deposit costs during the fourth quarter of 2008 did not fully benefit from the Federal Reserve reducing rates 175 basis points beginning in October 2008. Deposit costs were slightly lower in the fourth quarter and totaled 2.13 percent compared to 2.20 percent for the third quarter of 2008. The total cost of interest bearing liabilities declined 12 basis points to 2.52 percent in the fourth quarter from the third quarter of 2008 and compared to 3.71 percent in the fourth quarter a year ago.

Net interest income will continue to be impacted by nonaccrual loans and OREO during 2009. The effect of a slower housing market will continue to negatively impact the Company’s loan pipelines prospectively and loan growth for 2009 until an economic recovery begins. In the fourth quarter of 2008, total loans outstanding declined $65.9 million from the end of the third quarter of 2008, while period-end deposits declined $28.4 million at year-end 2008 from the end of the third quarter of 2008. As previously noted, a decline in deposits in the central Florida region was the primary cause, and the Company is confident that its new retail growth strategy is providing favorable results and should continue to prospectively.

Noninterest income, excluding securities gains and losses and losses on repossessed and foreclosed assets, decreased 6.4 percent in the fourth quarter of 2008 when compared to the third quarter of 2008. Noninterest income was $1,472,000 lower than fourth quarter a year ago, reflecting decreased revenue from service charges on deposits, merchant income, marine finance fees, wealth management fees, as well as decreased mortgage banking revenue. The tight credit markets were responsible for much lower marine finance activity and slower mortgage originations although applications in December 2008 for residential loans increased as mortgage rates were lower than in previous months. Merchant income, wealth management, and other revenue tied to transaction volumes were all lower as a result of the economic recession. The Company expects these revenue sources to be weaker until the economy begins to improve and asset value stabilize or increase.

Noninterest expenses in the fourth quarter of 2008 totaled $20.4 million, higher by $598,000 than the fourth quarter of 2007 and $490,000 above third quarter 2008’s result. In comparison, noninterest expenses for the fourth quarter of 2007 were $1,619,000, or 8.9 percent, higher than 2006’s fourth quarter. Legal and professional fees associated with loan collection efforts and nonrecurring expenses accounted for the increase in 2008’s fourth quarter over 2007’s, and nonrecurring expenses accounted for the increase compared to the third quarter of 2008. The Company believes legal costs should decline during 2009, as loans which have accounted for most of the increase in 2008 are further along in the collection process or sold. FDIC insurance costs were higher for 2008 and are expected to increase further substantially in 2009 as a result of increases in charges for FDIC insurance and the full year cost of the FDIC’s TLG guarantee on noninterest bearing transaction accounts next year, but noninterest expenses overall will benefit from reductions in overhead totaling $5.0 million implemented as of January 1, 2009, and further cost saving

41

initiatives. Executive cash incentives were not paid at year-end 2008 and reduced executive bonus compensation, lower incentive payouts for senior officers and reduced profit sharing compensation of $500,000 were recognized for the fourth quarter of 2007 compared to 2006. The effect of these reductions in compensation over the past two years will remain in place until the Company produces meaningful earnings improvements.

Table 1 — Condensed Income Statement*

	2008			2007			2006
	(Tax equivalent basis)
Net interest income		3.35	%		3.65	%		3.86	%
Provision for loan losses		3.84			0.55			0.14
Noninterest income
Securities restructuring losses		—			(0.22	)		—
Securities gains (losses)		0.02			—			(0.01	)
Other		0.93			1.07			1.04
Noninterest expenses		3.39			3.33			3.16
Income (loss) before income taxes		(2.93	)		0.62			1.59
Provision (benefit) for income taxes including tax equivalent adjustment		(0.96	)		0.20			0.56
Net Income (Loss)		(1.97	)%		0.42	%		1.03	%

* As a Percent of Average Assets

Table 2 — Changes in Average Earning Assets

	Increase/(Decrease)					Increase/(Decrease)
	2008 vs 2007					2007 vs 2006
	(Dollars in thousands)
Securities:
Taxable	$	(13,135	)	(4.4	)%	$	(217,212	)	(42.2	)%
Nontaxable		(182	)	(2.2	)		1,517		22.5
Federal funds sold and other short term investments		20,013		67.1			(37,736	)	(55.9	)
Loans, net		(6,858	)	(0.4	)		267,864		17.2
TOTAL	$	(161	)	(0.0	)	$	14,433		0.7

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Table 3 — Rate/Volume Analysis (on a Tax Equivalent Basis)

	2008 vs 2007									2007 vs 2006
	Due to Change in:									Due to Change in:
	Volume			Rate			Total			Volume			Rate			Total
	(Dollars in thousands)
	Amount of increase (decrease)
EARNING ASSETS
Securities
Taxable	$	(655	)	$	41		$	(614	)	$	(10,036	)	$	2,915		$	(7,121	)
NonTaxable		(12	)		(7	)		(19	)		99			(5	)		94
		(667	)		34			(633	)		(9,937	)		2,910			(7,027	)
Federal funds sold and other short term investments		794			(1,200	)		(406	)		(1,929	)		352			(1,577	)
Loans		(460	)		(21,539	)		(21,999	)		19,599			(668	)		18,931
TOTAL EARNING ASSETS		(333	)		(22,705	)		(23,038	)		7,733			2,594			10,327
INTEREST BEARING LIABILITIES
NOW		(1,232	)		(825	)		(2,057	)		(1,427	)		1,477			50
Savings deposits		(99	)		(10	)		(109	)		(219	)		58			(161	)
Money market accounts		2,250			(7,089	)		(4,839	)		1,710			3,517			5,227
Time deposits		2,524			(5,987	)		(3,463	)		3,601			4,093			7,694
		3,443			(13,911	)		(10,468	)		3,665			9,145			12,810
Federal funds purchased and other short term borrowings		(1,749	)		(3,441	)		(5,190	)		1,297			244			1,541
Other borrowings		2,245			(2,371	)		(126	)		553			(54	)		499
TOTAL INTEREST BEARING LIABILITIES		3,939			(19,723	)		(15,784	)		5,515			9,335			14,850
NET INTEREST INCOME	$	(4,272	)	$	(2,982	)	$	(7,254	)	$	2,218		$	(6,741	)	$	(4,523	)

(a) Changes attributable to rate/volume are allocated to rate and volume on an equal basis.

Table 4 — Changes in Average Interest Bearing Liabilities

	Increase/(Decrease)					Increase/(Decrease)
	2008 vs 2007					2007 vs 2006
	(Dollars in thousands)
NOW	$	(57,667	)	(46.6	)%	$	(67,870	)	(35.4	)%
Savings deposits		(14,099	)	(12.0	)		(31,843	)	(21.3	)
Money market accounts		87,606		13.3			61,251		10.2
Time deposits		57,647		9.4			80,259		15.1
Federal funds purchased and other short term borrowings		(57,476	)	(38.7	)		29,565		24.8
Other borrowings		41,579		53.9			8,327		12.1
TOTAL	$	57,590		3.3		$	79,689		4.8

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Table 5 — Three Year Summary

Average Balances, Interest Income and Expenses, Yields and Rates(1)

	2008								2007								2006
	Average					Yield/			Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
EARNING ASSETS
Securities
Taxable	$	284,345		$	14,198		4.99	%	$	297,480		$	14,812		4.98	%	$	514,692		$	21,933		4.26	%
Nontaxable		8,091			517		6.39			8,273			536		6.48			6,756			442		6.54
		292,436			14,715		5.03			305,753			15,348		5.02			521,448			22,375		4.29
Federal funds sold and other short term investments		49,821			1,225		2.46			29,808			1,631		5.47			67,544			3,208		4.75
Loans(2)		1,821,679			111,430		6.12			1,828,537			133,429		7.30			1,560,673			114,498		7.34
TOTAL EARNING ASSETS		2,163,936			127,370		5.89			2,164,098			150,408		6.95			2,149,665			140,081		6.52
Allowance for loan losses		(28,719	)							(16,842	)							(11,624	)
Cash and due from banks		41,273								60,322								74,280
Bank premises and equipment		43,107								38,886								32,573
Other assets		91,455								77,745								69,970
	$	2,311,052							$	2,324,209							$	2,314,864
INTEREST BEARING LIABILITIES
NOW	$	66,183			1,127		1.70	%	$	123,850			3,184		2.57	%	$	191,720			3,134		1.63	%
Savings deposits		103,382			723		0.70			117,481			832		0.71			149,324			993		0.66
Money market accounts		748,082			15,445		2.06			660,476			20,284		3.07			599,225			15,057		2.51
Time deposits		668,053			26,117		3.91			610,406			29,580		4.85			530,147			21,886		4.13
Federal funds purchased and other short term borrowings		91,134			1,466		1.61			148,610			6,656		4.48			119,045			5,115		4.30
Other borrowings		118,764			4,975		4.19			77,185			5,101		6.61			68,858			4,602		6.68
TOTAL INTEREST BEARING LIABILITIES		1,795,598			49,853		2.78			1,738,008			65,637		3.78			1,658,319			50,787		3.06
Demand deposits		302,577								358,597								446,471
Other liabilities		7,944								8,876								12,208
		2,106,119								2,105,481								2,116,998
Shareholders’ equity		204,933								218,728								197,866
	$	2,311,052							$	2,324,209							$	2,314,864
Interest expense as% of earning assets							2.30	%							3.03	%							2.36	%
Net interest income/yield on earning assets				$	77,517		3.58	%				$	84,771		3.92	%				$	89,294		4.15	%

(1)	The tax equivalent adjustment is based on a 35% tax rate.
(2)	Nonperforming loans are included in average loan balances. Fees on loans are included in interest on loans.

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Table 6 — Noninterest Income

	Year Ended								% Change
	2008		2007			2006			08/07			07/06
	(Dollars in thousands)
Service charges on deposit accounts	$	7,389	$	7,714		$	6,784			(4.2	)%		13.7	%
Trust fees		2,344		2,575			2,858			(9.0	)		(9.9	)
Mortgage banking fees		1,118		1,409			1,131			(20.7	)		24.6
Brokerage commissions and fees		2,097		2,935			3,002			(28.6	)		(2.2	)
Marine finance fees		2,304		2,865			2,709			(19.6	)		5.8
Debit card income		2,453		2,306			2,149			6.4			7.3
Other deposit based EFT fees		359		451			421			(20.4	)		7.1
Merchant income		2,399		2,841			2,545			(15.6	)		11.6
Gain on sale of partnership interest		—		—			1,147			n/m			(100.0	)
Other		1,102		1,814			1,514			(39.3	)		19.8
		21,565		24,910			24,260			(13.4	)		2.7
Securities gains (losses)		355		(5,048	)		(157	)		n/m			n/m
TOTAL	$	21,920	$	19,862		$	24,103			10.4			(17.6	)

n/m = not meaningful

Table 7 — NonInterest Expense

	Year Ended						% Change
	2008		2007		2006		08/07			07/06
	(Dollars in thousands)
Salaries and wages	$	30,159	$	31,575	$	29,146		(4.5	)%		8.3	%
Employee benefits		7,173		7,337		7,322		(2.2	)		0.2
Outsourced data processing costs		7,612		7,581		7,443		0.4			1.9
Telephone/data lines		1,896		1,905		1,836		(0.5	)		3.8
Occupancy		8,292		7,677		7,435		8.0			3.3
Furniture and equipment		2,841		2,863		2,523		(0.8	)		13.5
Marketing		2,614		3,075		4,359		(15.0	)		(29.5	)
Legal and professional fees		5,662		4,070		2,792		39.1			45.8
FDIC assessments		2,028		225		325		801.3			(30.8	)
Amortization of intangibles		1,259		1,259		1,063		0.0			18.4
Other		8,678		9,856		8,801		(12.0	)		12.0
TOTAL	$	78,214	$	77,423	$	73,045		1.0			6.0

45

Table 8 — Capital Resources

	December 31
	2008			2007			2006
	(Dollars in thousands)
TIER 1 CAPITAL
Common stock	$	1,928		$	1,920		$	1,899
Preferred stock		43,787			—			—
Additional paid in capital		99,788			90,924			88,380
Retained earnings		70,278			122,396			124,811
Treasury stock		(1,839	)		(1,193	)		(310	)
Qualifying trust preferred securities		52,000			52,000			40,000
Intangibles		(55,193	)		(56,452	)		(57,299	)
Other		(115	)		60			58
TOTAL TIER 1 CAPITAL		210,634			209,655			197,539
TIER 2 CAPITAL
Allowance for loan losses, as limited(1)		20,755			22,425			15,039
TOTAL TIER 2 CAPITAL		20,755			22,425			15,039
TOTAL RISK-BASED CAPITAL	$	231,389		$	232,080		$	212,578
Risk weighted assets	$	1,651,685		$	1,907,470		$	1,816,705
Tier 1 risk based capital ratio		12.75	%		10.99	%		10.87	%
Total risk based capital ratio		14.00			12.17			11.70
Regulatory minimum		8.00			8.00			8.00
Tier 1 capital to adjusted total assets		9.58			9.10			8.53
Regulatory minimum		4.00			4.00			4.00
Shareholder’s equity to assets		9.33			8.86			8.89
Average shareholders’ equity to average total assets		8.87			9.41			8.55

(1) Includes reserve for unfunded commitments of $65,000, $523,000, and $124,000 at December 31, 2008, 2007, and 2006.

46

Table 9 — Loans Outstanding

	December 31
	2008		2007		2006
			(In thousands)
Construction and land development
Residential	$	129,899	$	295,082	$	339,975
Commercial		209,297		242,448		139,813
		339,196		537,530		479,788
Individuals		56,047		72,037		91,345
		395,243		609,567		571,133
Real estate mortgage
Residential real estate
Adjustable		328,992		319,470		277,649
Fixed rate		95,456		87,506		87,883
Home equity mortgages		84,810		91,418		95,923
Home equity lines		58,502		59,088		50,920
		567,760		557,482		512,375
Commercial real estate		557,705		517,332		437,449
		1,125,465		1,074,814		949,824
Commercial and financial		82,765		126,695		128,101
Installment loans to individuals Automobiles and trucks		20,798		24,940		22,260
Marine loans		25,992		33,185		32,531
Other		26,118		28,237		28,637
		72,908		86,362		83,428
Other loans		347		951		625
TOTAL	$	1,676,728	$	1,898,389	$	1,733,111

Table 10 — Loan Maturity Distribution

	December 31, 2008
	Commercial		Construction and
	and Financial		Land Development		Total
			(In thousands)
In one year or less	$	27,406	$	293,365	$	320,771
After one year but within five years:
Interest rates are floating or adjustable		2,519		67,324		69,843
Interest rates are fixed		22,727		19,807		42,534
In five years or more:
Interest rates are floating or adjustable		6,115		9,105		15,220
Interest rates are fixed		23,998		5,642		29,640
TOTAL	$	82,765	$	395,243	$	478,008

47

Table 11 — Maturity of Certificates of Deposit of $100,000 or More

	December 31
			% of					% of
	2008		Total			2007		Total
			(Dollars in thousands)
Maturity Group:
Under 3 Months	$	159,436		45.2	%	$	107,002		39.5	%
3 to 6 Months		66,165		18.8			97,116		35.9
6 to 12 Months		76,704		21.7			43,566		16.1
Over 12 Months		50,502		14.3			23,140		8.5
TOTAL	$	352,807		100.0	%	$	270,824		100.0	%

Table 12 — Summary of Loan Loss Experience

	Year Ended December 31
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Beginning balance	$	21,902		$	14,915		$	9,006		$	6,598		$	6,160
Provision for loan losses		88,634			12,745			3,285			1,317			1,000
Carryover of allowance for loan losses		—			—			2,518			1,225			—
Charge offs:
Commercial and financial		2,289			1,072			16			254			591
Consumer		3,415			858			295			161			162
Commercial real estate		73,000			3,780			—			—			—
Residential real estate		4,675			240			—			—			—
TOTAL CHARGE OFFS		83,379			5,950			311			415			753
Recoveries:
Commercial and financial		222			57			161			125			41
Consumer		104			135			256			151			135
Commercial real estate		1,851			—			—			5			15
Residential real estate		54			—			—			—			—
TOTAL RECOVERIES		2,231			192			417			281			191
Net loan charge offs (recoveries)		81,148			5,758			(106	)		134			562
ENDING BALANCE	$	29,388		$	21,902		$	14,915		$	9,006		$	6,598
Loans outstanding at end of year*	$	1,676,728		$	1,898,389		$	1,733,111		$	1,289,995		$	899,547
Ratio of allowance for loan losses to loans outstanding at end of year		1.75	%		1.15	%		0.86	%		0.70	%		0.73	%
Daily average loans outstanding*	$	1,821,679		$	1,828,537		$	1,560,673		$	1,116,107		$	799,649
Ratio of net charge offs (recoveries) to average loans outstanding		4.45	%		0.31	%		(0.01	)%		0.01	%		0.07	%

* Net of unearned income.

48

Table 13 — Allowance for Loan Losses

	December 31
	2008			2007			2006			2005			2004
	(Dollars in thousands)
ALLOCATION BY LOAN TYPE
Commercial and financial loans	$	2,782		$	3,070		$	3,199		$	1,794		$	1,339
Real estate loans		24,006			17,942			11,073			6,328			4,395
Installment loans		2,600			890			643			884			864
TOTAL	$	29,388		$	21,902		$	14,915		$	9,006		$	6,598
YEAR END LOAN TYPES AS A PERCENT OF TOTAL LOANS
Commercial and financial loans		5.0	%		6.7	%		7.4	%		7.7	%		7.4	%
Real estate loans		90.7			88.7			87.8			85.9			83.5
Installment loans		4.3			4.6			4.8			6.4			9.1
TOTAL		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Table 14 — Nonperforming Assets

	December 31
	2008			2007			2006			2005			2004
	(Dollars in thousands)
Nonaccrual loans(1)	$	86,970		$	67,834		$	12,465		$	372		$	1,447
Other real estate owned		5,035			735			—			—			—
TOTAL NONPERFORMING ASSETS	$	92,005		$	68,569		$	12,465		$	372		$	1,447
Amount of loans outstanding at end of year(2)	$	1,676,728		$	1,898,389		$	1,733,111		$	1,289,995		$	899,547
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period		5.47	%		3.61	%		0.72	%		0.03	%		0.16	%
Accruing loans past due 90 days or more	$	1,838		$	25		$	64		$	465		$	32
Loans restructured and in compliance with modified terms		12,616			11			728			762			785

(1)	Interest income that could have been recorded during 2008 and 2007 related to nonaccrual loans was $9,435,000 and $2,206,000, respectively, none of which was included in interest income or net income. All nonaccrual loans are secured.
(2)	Net of unearned income.

49

Table 15 — Securities Available For Sale

	December 31
	Amortized		Fair		Unrealized		Unrealized
	Cost		Value		Gains		Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities
2008	$	22,094	$	22,380	$	286	$	—
2007		30,071		30,405		334		—
Mortgage-backed securities of U.S. Government Sponsored Entities
2008		59,500		60,529		1,035		(6	)
2007		31,970		32,303		333		—
Collateralized mortgage obligations of U.S. Government Sponsored Entities
2008		200,812		205,440		4,806		(178	)
2007		156,894		157,012		792		(674	)
Private collateralized mortgage obligations
2008		27,106		24,454		—		(2,652	)
2007		29,945		29,622		—		(323	)
Obligations of state and political subdivisions
2008		2,021		2,070		51		(2	)
2007		2,021		2,057		36		—
Other
2008		3,157		3,157		—		—
2007		3,517		3,517		—		—
Total Securities Available For Sale
2008	$	314,690	$	318,030	$	6,178	$	(2,838	)
2007		254,418		254,916		1,495		(997	)

50

Table 16 — Securities Held For Investment

	December 31
	Amortized		Fair		Unrealized		Unrealized
	Cost		Value		Gains		Losses
	(In thousands)
Collateralized mortgage obligations of U.S. Government Sponsored Entities
2008	$	1,960	$	1,913	$	—	$	(47	)
2007		1,960		1,946		—		(14	)
Private collateralized mortgage obligations
2008		20,288		18,530		—		(1,758	)
2007		23,795		23,546		—		(249	)
Obligations of states and political subdivisions
2008		5,623		5,666		49		(6	)
2007		6,145		6,190		53		(8	)
Total Securities Held For Investment
2008	$	27,871	$	26,109	$	49	$	(1,811	)
2007		31,900		31,682		53		(271	)

Table 17 — Maturity Distribution of Securities Held For Investment

	December 31, 2008
																Average
	1 Year			1-5			5-10			After						Maturity
	or Less			Years			Years			10 Years			Total			In Years
	(Dollars in thousands)
AMORTIZED COST
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	1,960			—			—			—		$	1,960			0.33
Private collateralized mortgage obligations		—		$	20,288			—			—			20,288			4.04
Obligations of state and political subdivisions		—			699		$	3,960		$	964			5,623			7.56
Total Securities Held For Investment	$	1,960		$	20,987		$	3,960		$	964		$	27,871			4.49
FAIR VALUE
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	1,913			—			—			—		$	1,913
Private collateralized mortgage obligations		—		$	18,530			—			—			18,530
Obligations of state and political subdivisions		—			703		$	3,985		$	978			5,666
Total Securities Held For Investment	$	1,913		$	19,233		$	3,985		$	978		$	26,109
WEIGHTED AVERAGE YIELD (FTE)
Collateralized mortgage obligations of U.S. Government Sponsored Entities		2.33	%		—			—			—			2.33	%
Private collateralized mortgage obligations		—			5.18	%		—			—			5.18	%
Obligations of state and political subdivisions		—			6.61	%		6.95	%		6.88	%		6.90	%
Total Securities Held For Investment		2.33	%		5.23	%		6.95	%		6.88	%		5.33	%

51

Table 18 — Maturity Distribution of Securities Available For Sale

	December 31, 2008
													No						Average
	1 Year			1-5			5-10			After			Contractual						Maturity
	or Less			Years			Years			10 Years			Maturity			Total			In Years
	(Dollars in thousands)
AMORTIZED COST
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities	$	22,094			—			—			—			—		$	22,094			0.29
Mortgage-backed securities of U.S. Government Sponsored Entities		5,364		$	7,720		$	36,733		$	9,683			—			59,500			6.92
Collateralized mortgage obligations of U.S. Government Sponsored Entities		—			52,931			94,294			53,587			—			200,812			7.95
Private collateralized mortgage obligations		—			15,243			11,863			—			—			27,106			4.89
Obligations of state and political subdivisions		—			—			545			1,476			—			2,021			10.30
Other		—			—			—			—		$	3,157			3,157			*
Total Securities Available For Sale	$	27,458		$	75,894		$	143,435		$	64,746		$	3,157		$	314,690			6.96
FAIR VALUE
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities	$	22,380			—			—			—			—		$	22,380
Mortgage-backed securities of U.S. Government Sponsored Entities		5,497		$	7,714		$	37,511		$	9,807			—			60,529
Collateralized mortgage obligations of U.S. Government Sponsored Entities		—			53,804			97,016			54,620			—			205,440
Private collateralized mortgage obligations		—			13,777			10,677			—			—			24,454
Obligations of state and political subdivisions		—			—			570			1,500			—			2,070
Other		—			—			—			—		$	3,157			3,157
Total Securities Available For Sale	$	27,877		$	75,295		$	145,774		$	65,927		$	3,157		$	318,030
WEIGHTED AVERAGE YIELD (FTE)
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities		5.00	%		—			—			—			—			5.00	%
Mortgage-backed securities of U.S. Government Sponsored Entities		5.77	%		5.64	%		5.27	%		5.39	%		—			5.38	%
Collateralized mortgage obligations of U.S. Government Sponsored Entities		—			4.63	%		4.84	%		2.27	%		—			4.10	%
Private collateralized mortgage obligations		—			5.02	%		5.77	%		—			—			5.35	%
Obligations of state and political subdivisions		—			—			6.48	%		6.85	%		—			6.75	%
Other		—			—			—			—			0.98	%		0.98	%
Total Securities Available For Sale		5.15	%		4.81	%		5.03	%		2.84	%		0.98	%		4.50	%

* Other Securities excluded from calculated average for total securities

52

Table 19 — Interest Rate Sensitivity Analysis(1)

	December 31, 2008
	0-3			4-12			1-5		Over
	Months			Months			Years		5 Years		Total
							(Dollars in thousands)
Federal funds sold and interest bearing deposits	$	105,190		$	—		$	—	$	—	$	105,190
Securities(2)		130,818			74,245			96,893		40,605		342,561
Loans(3)		620,355			349,272			529,753		92,543		1,591,923
Earning assets		856,363			423,517			626,646		133,148		2,039,674
Savings deposits(4)		802,201			—			—		—		802,201
Certificates of deposit		357,195			282,181			93,552		50		732,978
Borrowings		211,408			15,000			—		50,000		276,408
Interest bearing liabilities		1,370,804			297,181			93,552		50,050		1,811,587
Interest rate swaps		(15,302	)		15,302			—		—		—
Interest sensitivity gap	$	(529,743	)	$	141,638		$	533,094	$	83,098	$	228,087
Cumulative gap	$	(529,743	)	$	(388,105	)	$	144,989	$	228,087
Cumulative gap to total earning assets(%)		(26.0	)		(19.0	)		7.1		11.2
Earning assets to interest bearing liabilities(%)		62.5			142.5			669.8		N/M

(1)	The repricing dates may differ from maturity dates for certain assets due to prepayment assumptions.
(2)	Securities are stated at amortized cost.
(3)	Excludes nonaccrual loans.
(4)	This category is comprised of NOW, savings and money market deposits. If NOW and savings deposits (totaling $245,994) were deemed repriceable in “4-12 months”, the interest sensitivity gap and cumulative gap would be ($283,749) indicating 13.9% of earning assets and 76.1% of earning assets to interest bearing liabilities for the “0-3 months” category.

N/M Not meaningful

53

Table 20 — Quarterly Trends — Loans at End of Period (Dollars in Millions)

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

	2006		2007								2008
	4th Qtr		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr		1st Qtr		2nd Qtr		3rd Qtr		4th Qtr
Construction and land development
Residential
Condominiums	$	94.8	$	84.4	$	74.2	$	72.5	$	60.2	$	57.2	$	47.4	$	32.6	$	17.4
Townhomes		10.4		9.9		11.3		25.0		25.0		23.8		20.0		21.7		6.1
Single family residences		80.3		100.9		66.6		63.9		59.0		56.7		49.5		37.2		26.8
Single family land and lots		106.3		107.7		129.0		128.4		116.4		112.1		95.1		70.2		52.8
Multifamily		48.2		48.7		46.6		33.8		34.5		32.6		34.0		30.7		26.8
		340.0		351.6		327.7		323.6		295.1		282.4		246.0		192.4		129.9
Commercial
Office buildings		14.1		17.6		19.2		22.4		30.9		29.1		31.1		27.8		17.3
Retail trade		16.1		12.5		26.4		50.2		69.0		60.4		63.6		68.5		68.7
Land		93.5		93.4		99.4		86.2		82.6		92.5		75.4		73.9		73.3
Industrial		6.3		8.9		13.1		16.9		13.0		16.9		20.8		20.7		13.3
Healthcare		2.0		2.5		3.0		1.0		1.0		1.0		1.0		—		—
Churches and educational facilities		2.1		1.8		1.9		1.9		—		—		0.1		—		—
Lodging		2.1		4.8		11.2		11.2		11.2		—		—		—		—
Convenience stores		0.5		0.5		1.0		1.4		1.7		1.8		—		—		—
Marina		2.2		2.2		2.2		21.9		23.1		26.8		28.9		30.5		30.7
Other		0.9		2.8		12.8		8.6		9.9		11.3		6.3		5.4		6.0
		139.8		147.0		190.2		221.7		242.4		239.8		227.2		226.8		209.3
Individuals
Lot loans		40.6		40.5		40.0		40.7		39.4		39.4		40.0		38.4		35.7
Construction		50.7		41.7		43.6		41.0		32.7		32.4		27.1		27.4		20.3
		91.3		82.2		83.6		81.7		72.1		71.8		67.1		65.8		56.0
Total construction and land development		571.1		580.8		601.5		627.0		609.6		594.0		540.3		485.0		395.2
Real estate mortgages
Residential real estate
Adjustable		277.7		285.4		298.4		313.0		319.5		317.6		318.8		316.5		329.0
Fixed rate		87.9		87.9		87.6		88.1		87.5		89.1		90.2		93.4		95.5
Home equity mortgages		95.9		97.3		90.0		90.8		91.4		91.7		93.1		84.3		84.8
Home equity lines		50.9		51.4		56.6		55.1		59.1		56.3		59.4		59.7		58.5
		512.4		522.0		532.6		547.0		557.5		554.7		561.5		553.9		567.8
Commercial real estate
Office buildings		109.2		113.4		116.1		125.6		131.7		144.3		142.3		143.6		146.4
Retail trade		50.9		62.0		62.8		74.9		76.2		83.8		93.5		101.6		111.9
Land		—		—		—		2.6		5.3		—		—		0.6		—
Industrial		64.3		66.3		84.7		100.2		105.5		104.3		93.3		92.2		94.7
Healthcare		40.7		40.5		39.7		33.2		32.4		39.9		33.6		31.6		29.2
Churches and educational facilities		32.3		32.9		32.7		36.0		40.2		40.2		36.5		35.6		35.2
Recreation		4.4		4.4		4.5		4.7		3.0		2.8		1.8		1.8		1.7
Multifamily		9.9		8.4		10.4		11.3		13.8		20.0		19.1		19.2		27.2
Mobile home parks		6.0		3.0		4.0		4.0		3.9		3.2		3.1		3.1		3.0
Lodging		19.1		16.9		16.8		22.3		22.7		27.9		28.0		26.7		26.6
Restaurant		11.7		11.2		9.6		7.2		8.2		8.0		9.0		8.6		6.2
Agricultural		26.1		24.5		23.4		19.6		12.9		12.4		9.0		8.7		8.5
Convenience stores		22.0		22.2		23.6		23.5		23.2		23.1		24.9		23.6		23.5
Other		40.8		38.8		30.5		39.7		38.3		40.1		41.6		42.5		43.6
		437.4		444.5		458.8		504.8		517.3		550.0		535.7		539.4		557.7
Total real estate mortgages		949.8		966.5		991.4		1,051.8		1,074.8		1,104.7		1,097.2		1,093.3		1,125.5
Commercial & financial		128.1		112.1		139.0		135.1		126.7		93.9		94.8		88.5		82.8
Installment loans to individuals
Automobile and trucks		22.3		23.3		23.6		24.8		25.0		24.1		23.0		21.9		20.8
Marine loans		32.5		30.1		26.6		24.8		33.2		33.3		25.2		26.0		26.0
Other		28.6		29.8		29.4		29.0		28.2		27.5		27.9		27.4		26.1
		83.4		83.2		79.6		78.6		86.4		84.9		76.1		75.3		72.9
Other		0.7		0.7		1.6		0.6		0.9		0.5		0.4		0.5		0.3
	$	1,733.1	$	1,743.3	$	1,813.1	$	1,893.1	$	1,898.4	$	1,878.0	$	1,808.8	$	1,742.6	$	1,676.7

54

Table 21 — Quarterly Trends — Increase (Decrease) in Loans by Quarter (Dollars in Millions)

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

	2007												2008
	1st Qtr			2nd Qtr			3rd Qtr			4th Qtr			1st Qtr			2nd Qtr			3rd Qtr			4th Qtr
Construction and land development
Residential
Condominiums	$	(10.4	)	$	(10.2	)	$	(1.7	)	$	(12.3	)	$	(3.0	)	$	(9.8	)	$	(14.8	)	$	(15.2	)
Townhomes		(0.5	)		1.4			13.7			—			(1.2	)		(3.8	)		1.7			(15.6	)
Single family residences		20.6			(34.3	)		(2.7	)		(4.9	)		(2.3	)		(7.2	)		(12.3	)		(10.4	)
Single family land and lots		1.4			21.3			(0.6	)		(12.0	)		(4.3	)		(17.0	)		(24.9	)		(17.4	)
Multifamily		0.5			(2.1	)		(12.8	)		0.7			(1.9	)		1.4			(3.3	)		(3.9	)
		11.6			(23.9	)		(4.1	)		(28.5	)		(12.7	)		(36.4	)		(53.6	)		(62.5	)
Commercial
Office buildings		3.5			1.6			3.2			8.5			(1.8	)		2.0			(3.3	)		(10.5	)
Retail trade		(3.6	)		13.9			23.8			18.8			(8.6	)		3.2			4.9			0.2
Land		(0.1	)		6.0			(13.2	)		(3.6	)		9.9			(17.1	)		(1.5	)		(0.6	)
Industrial		2.6			4.2			3.8			(3.9	)		3.9			3.9			(0.1	)		(7.4	)
Healthcare		0.5			0.5			(2.0	)		—			—			—			(1.0	)		—
Churches and educational facilities		(0.3	)		0.1			—			(1.9	)		—			0.1			(0.1	)		—
Lodging		2.7			6.4			—			—			(11.2	)		—			—			—
Convenience stores		—			0.5			0.4			0.3			0.1			(1.8	)		—			—
Marina		—			—			19.7			1.2			3.7			2.1			1.6			0.2
Other		1.9			10.0			(4.2	)		1.3			1.4			(5.0	)		(0.9	)		0.6
		7.2			43.2			31.5			20.7			(2.6	)		(12.6	)		(0.4	)		(17.5	)
Individuals
Lot loans		(0.1	)		(0.5	)		0.7			(1.3	)		—			0.6			(1.6	)		(2.7	)
Construction		(9.0	)		1.9			(2.6	)		(8.3	)		(0.3	)		(5.3	)		0.3			(7.1	)
		(9.1	)		1.4			(1.9	)		(9.6	)		(0.3	)		(4.7	)		(1.3	)		(9.8	)
Total construction and land development		9.7			20.7			25.5			(17.4	)		(15.6	)		(53.7	)		(55.3	)		(89.8	)
Real estate mortgages
Residential real estate
Adjustable		7.7			13.0			14.6			6.5			(1.9	)		1.2			(2.3	)		12.5
Fixed rate		—			(0.3	)		0.5			(0.6	)		1.6			1.1			3.2			2.1
Home equity mortgages		1.4			(7.3	)		0.8			0.6			0.3			1.4			(8.8	)		0.5
Home equity lines		0.5			5.2			(1.5	)		4.0			(2.8	)		3.1			0.3			(1.2	)
		9.6			10.6			14.4			10.5			(2.8	)		6.8			(7.6	)		13.9
Commercial real estate
Office buildings		4.2			2.7			9.5			6.1			12.6			(2.0	)		1.3			2.8
Retail trade		11.1			0.8			12.1			1.3			7.6			9.7			8.1			10.3
Land		—			—			2.6			2.7			(5.3	)		—			0.6			(0.6	)
Industrial		2.0			18.4			15.5			5.3			(1.2	)		(11.0	)		(1.1	)		2.5
Healthcare		(0.2	)		(0.8	)		(6.5	)		(0.8	)		7.5			(6.3	)		(2.0	)		(2.4	)
Churches and educational facilities		0.6			(0.2	)		3.3			4.2			—			(3.7	)		(0.9	)		(0.4	)
Recreation		—			0.1			0.2			(1.7	)		(0.2	)		(1.0	)		—			(0.1	)
Multifamily		(1.5	)		2.0			0.9			2.5			6.2			(0.9	)		0.1			8.0
Mobile home parks		(3.0	)		1.0			—			(0.1	)		(0.7	)		(0.1	)		—			(0.1	)
Lodging		(2.2	)		(0.1	)		5.5			0.4			5.2			0.1			(1.3	)		(0.1	)
Restaurant		(0.5	)		(1.6	)		(2.4	)		1.0			(0.2	)		1.0			(0.4	)		(2.4	)
Agricultural		(1.6	)		(1.1	)		(3.8	)		(6.7	)		(0.5	)		(3.4	)		(0.3	)		(0.2	)
Convenience stores		0.2			1.4			(0.1	)		(0.3	)		(0.1	)		1.8			(1.3	)		(0.1	)
Other		(2.0	)		(8.3	)		9.2			(1.4	)		1.8			1.5			0.9			1.1
		7.1			14.3			46.0			12.5			32.7			(14.3	)		3.7			18.3
Total real estate mortgages		16.7			24.9			60.4			23.0			29.9			(7.5	)		(3.9	)		32.2
Commercial & financial		(16.0	)		26.9			(3.9	)		(8.4	)		(32.8	)		0.9			(6.3	)		(5.7	)
Installment loans to individuals
Automobile and trucks		1.0			0.3			1.2			0.2			(0.9	)		(1.1	)		(1.1	)		(1.1	)
Marine loans		(2.4	)		(3.5	)		(1.8	)		8.4			0.1			(8.1	)		0.8			—
Other		1.2			(0.4	)		(0.4	)		(0.8	)		(0.7	)		0.4			(0.5	)		(1.3	)
		(0.2	)		(3.6	)		(1.0	)		7.8			(1.5	)		(8.8	)		(0.8	)		(2.4	)
Other		—			0.9			(1.0	)		0.3			(0.4	)		(0.1	)		0.1			(0.2	)
	$	10.2		$	69.8		$	80.0		$	5.3		$	(20.4	)	$	(69.2	)	$	(66.2	)	$	(65.9	)

55

SELECTED QUARTERLY INFORMATION

QUARTERLY CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

	2008 Quarters											2007 Quarters
	Fourth			Third			Second			First		Fourth		Third			Second		First
	(Dollars in thousands, except per share data)
Net interest income:
Interest income	$	28,680		$	30,976		$	32,273		$	35,155	$	37,451	$	37,771		$	37,251	$	37,633
Interest expense		11,213			11,859			12,111			14,670		16,813		16,712			15,847		16,265
Net interest income		17,467			19,117			20,162			20,485		20,638		21,059			21,404		21,368
Provision for loan losses		30,656			10,241			42,237			5,500		3,813		8,375			1,107		(550	)
Net interest income (loss) after provision for loan losses		(13,189	)		8,876			(22,075	)		14,985		16,825		12,684			20,297		21,918
Noninterest income:
Service charges on deposit accounts		1,833			1,894			1,812			1,850		2,070		1,983			1,928		1,733
Trust fees		574			597			591			582		627		658			663		627
Mortgage banking fees		184			216			350			368		278		260			416		455
Brokerage commissions and fees		447			452			515			683		572		620			989		754
Marine finance fees		318			371			930			685		596		687			856		726
Debit card income		574			620			648			611		563		578			597		568
Other deposit based EFT fees		83			82			86			108		103		101			116		131
Merchant income		487			510			667			735		676		688			721		756
Other income		(13	)		332			243			540		474		444			430		466
Securities gains (losses)		—			—			355			—		24		22			26		(5,120	)
Total noninterest income		4,487			5,074			6,197			6,162		5,983		6,041			6,742		1,096
Noninterest expenses:
Salaries and wages		7,083			7,713			7,428			7,935		7,747		7,479			8,453		7,896
Employee benefits		1,664			1,770			1,714			2,025		1,918		1,700			2,032		1,687
Outsourced data processing costs		1,812			1,803			1,983			2,014		1,884		1,796			1,956		1,945
Telephone/data lines		498			471			489			438		468		460			494		483
Occupancy		2,256			2,112			2,081			1,843		1,956		1,928			1,919		1,874
Furniture and equipment		706			700			747			688		754		758			699		652
Marketing		600			545			871			598		707		875			793		700
Legal and professional fees		2,117			1,687			932			926		1,068		1,327			843		832
FDIC assessments		1,034			543			392			59		56		55			56		58
Amortization of intangibles		315			315			314			315		315		315			314		315
Other		2,305			2,241			2,289			1,843		2,919		2,334			2,342		2,261
Total noninterest expenses		20,390			19,900			19,240			18,684		19,792		19,027			19,901		18,703
Income (loss) before income taxes		(29,092	)		(5,950	)		(35,118	)		2,463		3,016		(302	)		7,138		4,311
Provision benefit for income taxes		(6,496	)		(2,502	)		(13,802	)		700		1,113		(587	)		2,330		1,542
Net income (loss)	$	(22,596	)	$	(3,448	)	$	(21,316	)	$	1,763	$	1,903	$	285		$	4,808	$	2,769
PER COMMON SHARE DATA
Net income (loss) diluted	$	(1.19	)	$	(0.18	)	$	(1.12	)	$	0.09	$	0.10	$	0.01		$	0.25	$	0.14
Net income (loss) basic		(1.19	)		(0.18	)		(1.12	)		0.09		0.10		0.02			0.25		0.15
Cash dividends declared:
Common stock		0.01			0.01			0.16			0.16		0.16		0.16			0.16		0.16
Market price common stock:
Low close		4.37			7.31			7.76			7.67		10.28		15.62			20.27		22.22
High close		11.00			12.57			11.20			12.46		19.57		22.30			25.36		24.65
Bid price at end of period		6.60			10.73			7.76			10.95		10.28		18.70			21.75		22.67

56

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Seacoast Banking Corporation of Florida:

We have audited Seacoast Banking Corporation of Florida and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated March 9, 2009 expressed an unqualified opinion on those consolidated financial statements.

Miami, Florida

March 9, 2009

Certified Public Accountants

57

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Seacoast Banking Corporation of Florida:

We have audited the accompanying consolidated balance sheets of Seacoast Banking Corporation of Florida and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seacoast Banking Corporation of Florida and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in note R to the consolidated financial statements, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115, as of January 1, 2007.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Miami, Florida

March 9, 2009

Certified Public Accountants

58

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	For the Year Ended December 31
	2008			2007			2006
	(Dollars in thousands, except share data)
INTEREST INCOME
Interest on securities
Taxable	$	14,198		$	14,812		$	21,933
Nontaxable		348			364			298
Interest and fees on loans		111,313			133,299			114,388
Interest on federal funds sold and interest bearing deposits		1,225			1,631			3,208
Total interest income		127,084			150,106			139,827
INTEREST EXPENSE
Interest on savings deposits		17,295			24,300			19,184
Interest on time certificates		26,117			29,580			21,886
Interest on short term borrowings		1,466			6,656			5,115
Interest on subordinated debt		2,551			3,229			2,685
Interest on other borrowings		2,424			1,872			1,917
Total interest expense		49,853			65,637			50,787
NET INTEREST INCOME		77,231			84,469			89,040
Provision for loan losses		88,634			12,745			3,285
NET INTEREST (LOSS) INCOME AFTER PROVISION FOR LOAN LOSSES		(11,403	)		71,724			85,755
NONINTEREST INCOME
Securities gains (losses)		355			(5,048	)		(157	)
Other		21,565			24,910			24,260
Total noninterest income		21,920			19,862			24,103
NONINTEREST EXPENSE		78,214			77,423			73,045
(LOSS) INCOME BEFORE INCOME TAXES		(67,697	)		14,163			36,813
Provision (benefit) for income taxes		(22,100	)		4,398			12,959
NET (LOSS) INCOME		(45,597	)		9,765			23,854
Preferred stock dividends and accretion on preferred stock discount		115			—			—
NET (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	(45,712	)	$	9,765		$	23,854
SHARE DATA
Net (loss) income per share of common stock
Diluted	$	(2.41	)	$	0.51		$	1.28
Basic		(2.41	)		0.52			1.30
Average common shares outstanding
Diluted		18,997,757			19,157,597			18,671,752
Basic		18,997,757			18,936,541			18,305,258

See notes to consolidated financial statements.

59

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31
	2008			2007
	(Dollars in thousands, except share data)
ASSETS
Cash and due from banks	$	46,002		$	50,490
Interest bearing deposits with other banks		100,585			—
Federal funds sold		4,605			47,985
Total cash and cash equivalents		151,192			98,475
Securities trading (at fair value)		0			13,913
Securities available for sale (at fair value)		318,030			254,916
Securities held for investment fair values: $26,109 in 2008 and $31,682 in 2007		27,871			31,900
Total securities		345,901			300,729
Loans held for sale		2,165			3,660
Loans, net of (unearned income) and deferred costs of $270 in 2008 and ($1,102) in 2007		1,676,728			1,898,389
Less: Allowance for loan losses		(29,388	)		(21,902	)
Net loans		1,647,340			1,876,487
Bank premises and equipment, net		44,122			40,926
Other real estate owned		5,035			735
Goodwill		49,813			49,813
Other intangible assets		5,380			6,639
Other assets		63,488			42,410
TOTAL ASSETS	$	2,314,436		$	2,419,874
LIABILITIES
Demand deposits (noninterest bearing)	$	275,262		$	327,646
Savings deposits		802,201			1,056,025
Other time deposits		380,171			332,838
Time certificates of $100,000 or more		352,807			270,824
Total deposits		1,810,441			1,987,333
Federal funds purchased and securities sold under agreement to repurchase, maturing within 30 days		157,496			88,100
Borrowed funds		65,302			65,030
Subordinated debt		53,610			53,610
Other liabilities		11,586			11,420
		2,098,435			2,205,493
Commitments and Contingencies (Notes K and P)
SHAREHOLDERS’ EQUITY
Preferred stock, par value $0.10 per share — authorized 4,000,000 shares, issued and outstanding 2,000 shares of Series A		43,787			—
Warrant for purchase of 1,179,245 shares of common stock at $6.36 per share		6,245			—
Common stock, par value $.10 per share authorized 35,000,000 shares, issued 19,283,841 and outstanding 19,171,779 shares in 2008 and authorized 35,000,000 shares, issued 19,194,174 and outstanding 19,110,089 shares in 2007		1,928			1,920
Additional paid-in capital		93,543			90,924
Retained earnings		70,278			122,396
Less: Treasury stock (112,062 shares in 2008 and 84,085 shares in 2007), at cost		(1,839	)		(1,193	)
		213,942			214,047
Accumulated other comprehensive income, net		2,059			334
TOTAL SHAREHOLDERS’ EQUITY		216,001			214,381
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,314,436		$	2,419,874

See notes to consolidated financial statement.

60

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

	For The Year Ended December 31
	2008			2007			2006
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received	$	127,591		$	148,171		$	136,952
Fees and commissions received		22,262			24,953			23,110
Interest paid		(50,166	)		(65,395	)		(50,300	)
Cash paid to suppliers and employees		(71,834	)		(72,386	)		(71,624	)
Income taxes paid		(1,907	)		(10,681	)		(13,886	)
Trading securities activity		14,000			(9,270	)		—
Origination of loans designated held for sale		(190,337	)		(214,432	)		(200,060	)
Sale of loans designated held for sale		191,832			216,660			196,612
Net change in other assets		232			(872	)		(1,903	)
Net cash provided by operating activities		41,673			16,748			18,901
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of securities available for sale		27,438			67,233			125,392
Maturities of securities held for investment		4,017			10,511			25,730
Proceeds from sale of securities available for sale		13,964			148,453			112,420
Proceeds from sale of securities held for investment		—			85,551			—
Purchases of securities available for sale		(101,086	)		(158,871	)		(92,627	)
Net new loans and principal payments		63,483			(170,636	)		(240,763	)
Proceeds from sale of loans		69,569			—			—
Proceeds from the sale of other real estate owned		3,435			32			151
Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank Stock		—			10,125			4,915
Purchase of Federal Home Loan Bank and Federal Reserve Bank Stock		(182	)		(12,380	)		(6,329	)
Additions to bank premises and equipment		(6,621	)		(6,799	)		(6,991	)
Proceeds from sale of partnership interest		—			—			1,302
Purchase of Big Lake, net of cash and cash equivalents acquired		—			—			48,622
Net cash used in (provided by) investing activities		74,017			(26,781	)		(28,178	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits		(176,877	)		96,307			(194,091	)
Net increase (decrease) in federal funds purchased and repurchase agreements		69,396			(118,376	)		103,555
Increase (decrease) in borrowings and subordinated debt		—			50,000			(19,000	)
Proceeds from issuance of preferred stock and warrant		50,000			—			—
Stock based employee benefit plans		908			450			1,760
Dividend reinvestment plan		89			92			—
Dividends paid		(6,489	)		(12,180	)		(11,225	)
Net cash provided by (used in) financing activities		(62,973	)		16,293			(119,001	)
Net increase (decrease) in cash and cash equivalents		52,717			6,260			(128,278	)
Cash and cash equivalents at beginning of year		98,475			92,215			220,493
Cash and cash equivalents at end of year	$	151,192		$	98,475		$	92,215

See notes to consolidated financial statements.

61

SEACOAST BANKING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

																				Accumulated
																				Other
	Common Stock						Preferred Stock				Paid-in			Retained			Treasury			Comprehensive
(Dollars in thousands)	Shares			Amount			Shares		Amount		Capital			Earnings			Stock			Income (Loss), Net			Total
BALANCE AT DECEMBER 31, 2005		17,084		$	1,710			—	$	—	$	42,900		$	112,182		$	(218	)	$	(3,854	)	$	152,720
Comprehensive Income:
Net income		—			—			—		—		—			23,854			—			—			23,854
Net unrealized gain on securities		—			—			—		—		—			—			—			1,294			1,294
Net reclassification adjustment		—			—			—		—		—			—			—			217			217
Net unrealized (loss) on cash flow interest rate swap		—			—			—		—		—			—			—			(12	)		(12	)
Comprehensive income		—			—			—		—		—			—			—			—			25,353
Cash dividends at $0.61 per share		—			—			—		—		—			(11,225	)		—			—			(11,225	)
Treasury stock acquired		(12	)		—			—		—		—			—			(298	)		—			(298	)
Stock-based compensation expense		—			—			—		—		332			—			—			—			332
Dissenting shareholders of Century National Bank		(5	)		(1	)		—		—		(108	)		—			—			—			(109	)
Common stock issued for stock based employee benefit plans		132			12			—		—		1,839						206			—			2,057
Common stock issued for the acquisition of Big Lake National Bank		1,775			178			—		—		43,417			—			—			—			43,595
BALANCE AT DECEMBER 31, 2006		18,974			1,899			—		—		88,380			124,811			(310	)		(2,355	)		212,425
Comprehensive Income:
Net income		—			—			—		—		—			9,765			—			—			9,765
Net unrealized gain on securities		—			—			—		—		—			—			—			516			516
Net reclassification adjustment		—			—			—		—		—			—			—			2,173			2,173
Comprehensive income		—			—			—		—		—			—			—			—			12,454
Cash dividends at $0.64 per share		—			—			—		—		—			(12,180	)		—			—			(12,180	)
Treasury stock acquired		(161	)		—			—		—		—			—			(2,659	)		—			(2,659	)
Stock-based compensation expense		—			—			—		—		423			—			—			—			423
Common stock issued for stock based employee benefit plans		291			21			—		—		2,127						1,678			—			3,826
Dividend reinvestment plan		6			—			—		—		(6	)		—			98			—			92
BALANCE AT DECEMBER 31, 2007		19,110			1,920			—		—		90,924			122,396			(1,193	)		334			214,381
Comprehensive Income:
Net loss		—			—			—		—		—			(45,597	)		—			—			(45,597	)
Net unrealized gain on securities		—			—			—		—		—			—			—			1,863			1,863
Net reclassification adjustment		—			—			—		—		—			—			—			(138	)		(138	)
Comprehensive loss		—			—			—		—		—			—			—			—			(43,872	)
Cash dividends at $0.34 per share		—			—			—		—		—			(6,489	)		—			—			(6,489	)
Stock-based compensation expense		—			—			—		—		463			—			—			—			463
Common stock issued for stock based employee benefit plans		52			8			—		—		2,191			—			(770	)		—			1,429
Dividend reinvestment plan		10			—			—		—		(35	)		—			124			—			89
Proceeds from issuance of preferred stock and warrant		—			—			2		43,755		6,245			—			—			—			50,000
Accretion on preferred stock discount		—			—			—		32		—			(32	)		—			—			—
BALANCE AT DECEMBER 31, 2008		19,172		$	1,928			2		43,787	$	99,788		$	70,278		$	(1,839	)	$	2,059		$	216,001

See notes to consolidated financial statements.

62

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A   Significant Accounting Policies

General:  Seacoast Banking Corporation of Florida (“Seacoast”) is a single segment bank holding company with one operating subsidiary bank, Seacoast National Bank (together the “Company”). The bank’s service area includes Okeechobee, Highlands, Hendry, Hardee, Glades, DeSoto, Palm Beach, Martin, St. Lucie, Brevard, Indian River, Broward, Orange and Seminole counties, which are located in central and southeast Florida. The bank operates full service branches within its markets.

The consolidated financial statements include the accounts of Seacoast and all its majority-owned subsidiaries but exclude three trusts created for the issuance of trust preferred securities. In consolidation, all significant intercompany accounts and transactions are eliminated.

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America, and they conform to general practices within the applicable industries.

Cash and Cash Equivalents:  Cash and cash equivalents include cash and due from banks, interest-bearing bank balances and federal funds sold and securities purchased under resale agreements. Cash and cash equivalents have original maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Securities Purchased and Sold Agreements:  Securities purchased under resale agreements and securities sold under repurchase agreements are generally accounted for as collateralized financing transactions and are recorded at the amount at which the securities were acquired or sold plus accrued interest. It is the Company’s policy to take possession of securities purchased under resale agreements, which are primarily U.S. Government and Government agency securities. The fair value of securities purchased and sold is monitored and collateral is obtained from or returned to the counterparty when appropriate.

Use of Estimates:  The preparation of these financial statements requires the use of certain estimates by management in determining the Company’s assets, liabilities, revenues and expenses, and contingent liabilities. Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for loan losses, the valuation of investment securities available for sale and for trading, realization of deferred tax assets, contingent liabilities, other real estate owned and goodwill. Actual results could differ from those estimates. Current market conditions increase the risk and complexity of the judgments in these estimates.

Securities:  Securities are classified at date of purchase as trading, available for sale or held to maturity. Securities that may be sold as part of the Company’s asset/liability management or in response to, or in anticipation of changes in interest rates and resulting prepayment risk, or for other factors are stated at fair value with unrealized gains or losses reflected as a component of shareholders’ equity net of tax or included in noninterest income as appropriate. The estimated fair value of a security is determined based on market quotations when available or, if not available, by using quoted market prices for similar securities, pricing models or discounted cash flow analyses, using observable market data where available. Debt securities that the Company has the ability and intent to hold to maturity are carried at amortized cost.

Realized gains and losses, including other than temporary impairments, are included in noninterest income as investment securities gains (losses). Interest and dividends on securities, including amortization of premiums and accretion of discounts, is recognized in interest income on an accrual basis using the interest method. The Company anticipates prepayments of principal in the calculation of the effective yield for collateralized mortgage obligations and mortgage backed securities by obtaining estimates of prepayments from independent third parties. The adjusted cost of each specific security sold is used to compute realized gains or losses on the sale of securities on a trade date basis.

63

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On a quarterly basis, the Company makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security is impaired on an other-than-temporary basis. Management considers many factors including the length of time the security has had a fair value less than the cost basis; our intent and ability to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than temporary are written down to fair value with the write-down recorded as a realized loss.

For securities which are transferred into held to maturity from available for sale the unrealized gain or loss at the date of transfer is reported as a component of shareholders’ equity and is amortized over the remaining life as an adjustment of yield using the interest method.

Loans:  Loans are recognized at the principal amount outstanding, net of unearned income and amounts charged off. Unearned income includes discounts, premiums and deferred loan origination fees reduced by loan origination costs. Unearned income on loans is amortized to interest income over the life of the related loan using the effective interest rate method. Interest income is recognized on an accrual basis.

Fees received for providing loan commitments and letters of credit that may result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to noninterest income as banking fees and commissions on a straight-line basis over the commitment period when funding is not expected.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are considered held for investment.

The Company accounts for loans in accordance with SFAS No. 15 “Accounting by Debtor and Creditors for Troubled Debt Restructurings,” when due to a deterioration in a borrower’s financial position, the Company grants concessions that would not otherwise be considered. Troubled debt restructured loans are tested for impairment under SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” and placed in non-accrual status. If borrowers perform pursuant to the modified loan terms for at least six months and the remaining loan balances are considered collectible, the loans are returned to accrual status. When the Company modifies the terms of an existing loan that is not considered a troubled debt restructuring, the Company follows the provisions of EITF No. 01-7, “Creditor’s Accounting for a Modification or Exchange of Debt Instruments.

A loan is considered to be impaired when based on current information, it is probable the Company will not receive all amounts due in accordance with the contractual terms of a loan agreement. The fair value is measured based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. A loan is also considered impaired if its terms are modified in a troubled debt restructuring. When the ultimate collectibility of the principal balance of an impaired loan is in doubt, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any interest has been forgone, and then they are recorded as recoveries of any amounts previously charged off.

The accrual of interest is generally discontinued on loans and leases, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Generally, loans past due 90 days or more are placed on nonaccrual status regardless of security. When interest accruals are discontinued, unpaid interest is reversed against interest income. Consumer loans that become 120 days past due are generally charged off. When borrowers demonstrate over an extended period the ability to repay a loan in accordance with the contractual terms of a loan classified as nonaccrual, the loan is returned to accrual status. Interest income on nonaccrual

64

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

loans is either recorded using the cash basis method of accounting or recognized after the principal has been reduced to zero, depending on the type of loan.

Derivatives Used for Risk Management:  The Company may designate a derivative as either a hedge of the fair value of a recognized fixed rate asset or liability or an unrecognized firm commitment (“fair value” hedge), a hedge of a forecasted transaction or of the variability of future cash flows of a floating rate asset or liability (“cash flow” hedge). All derivatives are recorded as other assets or other liabilities on the balance sheet at their respective fair values with unrealized gains and losses recorded either in other comprehensive income or in the results of operations, depending on the purpose for which the derivative is held. Derivatives that do not meet the criteria for designation as a hedge at inception, or fail to meet the criteria thereafter, are carried at fair value with unrealized gains and losses recorded in the results of operations.

To the extent of the effectiveness of a cash flow hedge, changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge are recorded in other comprehensive income (loss). The net periodic interest settlement on derivatives is treated as an adjustment to the interest income or interest expense of the hedged assets or liabilities.

At inception of a hedge transaction, the Company formally documents the hedge relationship and the risk management objective and strategy for undertaking the hedge. This process includes identification of the hedging instrument, hedged item, risk being hedged and the methodology for measuring ineffectiveness. In addition, the Company assesses both at the inception of the hedge and on an ongoing quarterly basis, whether the derivative used in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item, and whether the derivative as a hedging instrument is no longer appropriate.

The Company discontinues hedge accounting prospectively when either it is determined that the derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item; the derivative expires or is sold, terminated or exercised; the derivative is de-designated because it is unlikely that a forecasted transaction will occur; or management determines that designation of the derivative as a hedging instrument is no longer appropriate.

When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted as an adjustment to yield over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transaction are still expected to occur, unrealized gains and losses that are accumulated in other comprehensive income are included in the results of operations in the same period when the results of operations are also affected by the hedged cash flow. They are recognized in the results of operations immediately if the cash flow hedge was discontinued because a forecasted transaction is not expected to occur.

Certain commitments to sell loans are derivatives. These commitments are recorded as a freestanding derivative and classified as an other asset or liability.

Loans Held for Sale:  Loans are classified as held for sale based on management’s intent to sell the loans, either as part of a core business strategy or related to a risk mitigation strategy. Loans held for sale and any related unfunded lending commitments are recorded at the lower of cost (which is the carrying amount net of deferred fees and costs and applicable allowance for loan losses and reserve for unfunded lending commitments) or fair value less costs to sell. At the time of the transfer to loans held for sale, if the fair value is less than cost, the difference is recorded as additional provision for credit losses in the results of operations. Fair value is determined based on quoted market prices for the same or similar loans, outstanding investor commitments or discounted cash flow analyses using market assumptions.

At December 31, 2007 fair value for substantially all the loans in loans held for sale were obtained by reference to prices for the same or similar loans from recent transactions. For a relationship that includes an unfunded lending commitment, the cost basis is the outstanding balance of the loan net of the allowance for

65

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

loan losses and net of any reserve for unfunded lending commitments. This cost basis is compared to the fair value of the entire relationship including the unfunded lending commitment.

Individual loans or pools of loans are transferred from the loan portfolio to loans held for sale when the intent to hold the loans has changed and there is a plan to sell the loans within a reasonable period of time. Loans held for sale are reviewed quarterly. Subsequent declines or recoveries of previous declines in the fair value of loans held for sale are recorded in other fee income in the results of operations. Fair value changes occur due to changes in interest rates, the borrower’s credit, the secondary loan market and the market for a borrower’s debt. If an unfunded lending commitment expires before a sale occurs, the reserve associated with the unfunded lending commitment is recognized as a credit to other fee income in the results of operations.

Fair Value Measurements (SFAS 157):  The Company measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities that are elected to be accounted for under SFAS No. 159 as well as for certain assets and liabilities in which fair value is the primary basis of accounting. Examples of these include derivative instruments, available for sale and trading securities, loans held for sale and long-term debt. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes. Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of cost or fair value, mortgage servicing rights, goodwill, and long-lived assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value, which are in accordance with SFAS No. 157.

In accordance with SFAS No. 157, the Company applied the following fair value hierarchy:

Level 1 — Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.

Level 2 — Assets and liabilities valued based on observable market data for similar instruments.

Level 3 — Assets and liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require.

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets and the Company must use alternative valuation techniques to derive a fair value measurement.

Other Real Estate Owned:  Other real estate owned (“OREO”) consists of real estate acquired in lieu of unpaid loan balances. These assets are carried at an amount equal to the loan balance prior to foreclosure plus costs incurred for improvements to the property, but no more than the estimated fair value of the property less estimated selling costs. Any valuation adjustments required at the date of transfer are charged to the allowance for loan losses. Subsequently, unrealized losses and realized gains and losses are included in other noninterest income. Operating results from OREO are recorded in other noninterest expense.

Bank Premises and Equipment:  Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Premises and equipment include certain costs associated with the acquisition of leasehold improvements. Depreciation and amortization are recognized principally by the straight-line method,

66

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

over the estimated useful lives as follows: buildings — 25-40 years, leasehold improvements — 5-25 years, furniture and equipment — 3-12 years.

Goodwill and Other Intangible Assets:  Goodwill and intangible assets with indefinite lives are not subject to amortization. Rather they are subject to impairment tests at least annually, or more often if events or circumstances indicate there may be impairment. The Company’s goodwill evaluation for the year ended December 31, 2008, indicated that none of the goodwill was impaired. Intangible assets with finite lives continue to be amortized over the period the Company expects to benefit from such assets and are periodically reviewed to determine whether there have been any events or circumstances to indicate the recorded amount is not recoverable from projected undiscounted net operating cash flows. A loss is recognized to reduce the carrying amount to fair value, where appropriate.

Revenue Recognition:  Revenue is recognized when the earnings process is complete and collectibility is assured. Brokerage fees and commissions are recognized on a trade date basis. Asset management fees, measured by assets at a particular date, are accrued as earned. Commission expenses are recorded when the related revenue is recognized.

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments:  The Company has developed policies and procedures for assessing the adequacy of the allowance for loan losses and reserve for unfunded lending commitments that reflect the evaluation of credit risk after careful consideration of all available information. Where appropriate this assessment includes monitoring qualitative and quantitative trends including changes in levels of past due, criticized and nonperforming loans. In developing this assessment, the Company must necessarily rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown such as economic factors, developments affecting companies in specific industries and issues with respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may result in an increase or a decrease in the allowance for loan losses.

The allowance for loan losses and reserve for unfunded lending commitments is maintained at a level the Company believes is adequate to absorb probable losses inherent in the loan portfolio and unfunded lending commitments as of the date of the consolidated financial statements. The Company employs a variety of modeling and estimation tools in developing the appropriate allowance for loan losses and reserve for unfunded lending commitments. The allowance for loan losses and reserve for unfunded lending commitments consists of formula-based components for both commercial and consumer loans, allowance for impaired commercial loans and allowance related to additional factors that are believed indicative of current trends and business cycle issues.

The Company monitors qualitative and quantitative trends in the loan portfolio, including changes in the levels of past due, criticized and nonperforming loans. The distribution of the allowance for loan losses and reserve for unfunded lending commitments between the various components does not diminish the fact that the entire allowance for loan losses and reserve for unfunded lending commitments is available to absorb credit losses in the loan portfolio. The principal focus is, therefore, on the adequacy of the total allowance for loan losses and reserve for unfunded lending commitments.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s bank subsidiary’s allowance for loan losses and reserve for unfunded lending commitments. These agencies may require such subsidiaries to recognize changes to the allowance for loan losses and reserve for unfunded lending commitments based on their judgments about information available to them at the time of their examination.

Income Taxes:  Seacoast uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their related tax bases and are measured using the

67

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

enacted tax rates and laws that are in effect. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in rates is recognized as income or expense in the period in which the change occurs. See Note L, Income Taxes for related disclosures.

Earnings per Share:  Basic earnings per share are computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are based on the weighted-average number of common shares outstanding during each period, plus common share equivalents calculated for stock options and performance restricted stock outstanding using the treasury stock method.

Stock-Based Compensation:  The three stock option plans are accounted for under FASB Statement No. 123R and the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with market assumptions. This amount is amortized on a straight-line basis over the vesting period, generally five years. (See Note J)

For restricted stock awards, which generally vest based on continued service with the Company, the deferred compensation is measured as the fair value of the shares on the date of grant, and the deferred compensation is amortized as salaries and employee benefits in accordance with the applicable vesting schedule, generally straight-line over five years. Some shares vest based upon the Company achieving certain performance goals and salary amortization expense is based on an estimate of the most likely results on a straight line basis.

Recently Issued Accounting Standards, Not Adopted as of December 31, 2008

In December 2007, FASB issued SFAS No. 141(R), Business Combinations, and No. 160, Noncontrolling Interests in Consolidated Financial Statements. These statements aim to improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. These statements are effective for fiscal years beginning after December 15, 2008. SFAS No. 141(R) will have an impact on the accounting for future acquisitions beginning in the fiscal year 2009. Significant changes include the capitalization of in-process research and development (IPR&D), expensing of acquisition related restructuring actions and transaction related costs and the recognition of contingent purchase price consideration at fair value at the acquisition date. In addition, changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period will be recognized in earnings rather than as an adjustment to the cost of acquisition. This accounting treatment for taxes is applicable to acquisitions that occurred both prior and subsequent to the adoption of SFAS No. 141(R). The Company believes that the adoption of SFAS No. 141(R) and SFAS No. 160 will not have a material effect on its results of operations, cash flows or financial position.

In February 2008, the FASB issued FASB Staff Position SFAS No. 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP SFAS No. 140-3”). Under the new guidance, the initial transfer of a financial asset and subsequent repurchase financing involving the same asset is presumptively to be linked and are considered part of the same arrangement under SFAS No. 140. The initial transfer and subsequent financing transaction will be considered separate transactions under SFAS No. 140 if certain conditions are met. FSP SFAS No. 140-3 is effective for new transactions entered into in fiscal years beginning after November 15, 2008. Early adoption is prohibited. We do not expect the adoption of FSP SFAS No. 140-3 will have a material impact on our financial position or results of operations.

In March 2008, the FASB issued SFAS Statement No. 161, Disclosures About Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, to enhance the disclosure regarding the Company’s derivative and hedging activities, to improve the transparency of financial reporting. This statement

68

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 161 will have no impact on the Company’s results of operations, cash flows or financial position.

In December 2008, the Financial Accounting Standard Board issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP FAS No. 140-4”). FSP FAS No. 140-4 amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and FIN 46(R), “Consolidation of Variable Interest Entities,” and requires additional disclosures by public entities with continuing involvement in transfers of financial assets to qualifying special purpose entities and with variable interest entities. Additionally, FSP FAS No. 140-4 requires certain disclosures to be provided by a public enterprise who is a non-transferor sponsor holding a variable interest or who is a non-transferor servicer holding a significant variable interest in a QSPE. FSP FAS No. 140-4 is effective for the first reporting period ending after December 15, 2008. The adoption of the FSP FAS No. 140-4 did not have a material impact on our consolidated financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). While FSP EITF No. 99-20-1 retains fair value as the measurement attribute for those other-than-temporarily impaired beneficial interests, we are not permitted to use market participant assumptions regarding future cash flows to assess other-than-temporary impairment. FSP EITF No. 99-20-1 requires us to update our interest income recognition any time it is probable that there is a favorable change in the estimated cash flows or an adverse change in estimated cash flows resulting in an other-than-temporary impairment. FSP EITF No. 99-20-1 would be applied prospectively to interim and annual reporting periods ending after December 15, 2008. The adoption of FSP EITF No. 99-20-1 will not have a material impact on our financial position or results of operations.

Note B   Securities Trading

No trading securities were purchased or sold during 2008. Trading securities purchased during 2007 consisted of US Treasury bills, notes and US Government Agency notes and were primarily used for customer repurchase agreements and pledging requirements. At December 31, 2008, the trading portfolio had a zero balance. At December 31, 2007, the trading portfolio consisted of $13.9 million in US Treasury notes with maturities of less than five months.

Note C   Cash, Dividend and Loan Restrictions

In the normal course of business, the Company and its subsidiary bank enter into agreements, or are subject to regulatory agreements that result in cash, debt and dividend restrictions. A summary of the most restrictive items follows:

The Company’s subsidiary bank is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances was a nominal amount for 2008 and $12,350,000 for 2007.

Under Federal Reserve regulation, the Company’s subsidiary bank is limited as to the amount it may loan to their affiliates, including the Company, unless such loans are collateralized by specified obligations. At December 31, 2008, the maximum amount available for transfer from the subsidiary bank to the Company in the form of loans approximated $19.1 million.

The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank’s profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Under this restriction the Company’s subsidiary bank cannot distribute any dividends to the Company as of December 31, 2008, without prior approval of the Comptroller of the Currency.

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SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note D   Securities

The amortized cost and fair value of securities at December 31, 2008, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.

	Held for Investment				Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
			(In thousands)
Due in less than one year	$	—	$	—	$	22,094	$	22,380
Due after one year through five years		699		703		—		—
Due after five years		4,924		4,963		2,021		2,070
		5,623		5,666		24,115		24,450
Mortgage-backed securities of U.S. Government Sponsored Entities		—		—		59,500		60,529
Collateralized mortgage obligations of U.S. Government Sponsored Entities		1,960		1,913		200,812		205,440
Private collateralized mortgage obligations		20,288		18,530		27,106		24,454
No contractual maturity		—		—		3,157		3,157
	$	27,871	$	26,109	$	314,690	$	318,030

Proceeds from sales of securities available for sale during 2008, were $13,964,000 with gross gains of $355,000.

Proceeds from sales of securities available for sale during 2007, were $148,453,000 with gross gains of $120,000 and gross losses of $2,885,000. Proceeds from sales of securities held for investment during 2007 were $85,551,000 with gross losses of $2,283,000. Securities were sold as part of the securities portfolio restructuring during the first quarter of 2007.

During the first quarter of 2007, due to the ongoing inverted yield curve and other economic challenges, the Company determined it was in the best interest of shareholders to restructure its balance sheet by selling low yielding securities and paying off overnight borrowings. At the date that the lower yielding securities were sold, the Company had concluded that it would elect the fair value option under SFAS No. 159 for these securities and therefore considered them to be trading securities. This conclusion was based on the Company’s understanding and interpretation of SFAS No. 159 at that time and followed a thoughtful evaluation and extensive discussion by management, the audit committee, and the Company’s independent registered public accounting firm. Following the sales of these securities, additional interpretations of the requirements for early adoption of SFAS No. 159 were discussed publicly. These discussions included general comments made by the Securities and Exchange Commission and guidance from the Center for Audit Quality. After considering these interpretations and further analysis by the accounting industry, the Company concluded that it should not have elected the fair value option for these securities. Accordingly, the Company presented these securities as available for sale and held for investment and recorded an other-than-temporary impairment of $5.1 million in the Consolidated Statement of Income.

Securities with a carrying value of $273,032,000 and a fair value of $272,993,000 at December 31, 2008, were pledged as collateral for repurchase agreements, United States Treasury deposits, other public deposits and trust deposits.

70

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	December 31, 2008
	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
			(In thousands)
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities	$	22,094	$	286	$	—		$	22,380
Mortgage-backed securities of U.S. Government Sponsored Entities		59,500		1,035		(6	)		60,529
Collateralized mortgage obligations of U.S. Government Sponsored Entities		200,812		4,806		(178	)		205,440
Private collateralized mortgage obligations		27,106		—		(2,652	)		24,454
Obligations of state and political subdivisions		2,021		51		(2	)		2,070
Other		3,157		—		—			3,157
	$	314,690	$	6,178	$	(2,838	)	$	318,030
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	1,960	$	—	$	(47	)		1,913
Private collateralized mortgage obligations		20,288		—		(1,758	)		18,530
Obligations of state and political subdivisions		5,623		49		(6	)		5,666
	$	27,871	$	49	$	(1,811	)	$	26,109

	December 31, 2007
	Gross		Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
			(In thousands)
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities	$	30,071	$	334	$	—		$	30,405
Mortgage-backed securities of U.S. Government Sponsored Entities		31,970		333		—			32,303
Collateralized mortgage obligations of U.S. Government Sponsored Entities		156,894		792		(674	)		157,012
Private collateralized mortgage obligations		29,945		—		(323	)		29,622
Obligations of state and political subdivisions		2,021		36		—			2,057
Other		3,517		—		—			3,517
	$	254,418	$	1,495	$	(997	)	$	254,916
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	1,960	$	—	$	(14	)	$	1,946
Private collateralized mortgage obligations		23,795		—		(249	)		23,546
Obligations of state and political subdivisions		6,145		53		(8	)		6,190
	$	31,900	$	53	$	(271	)	$	31,682

71

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All of the Company’s securities which had unrealized losses at December 31, 2008 were obligations of the U.S. Treasury, U.S. Government agencies or AAA rated mortgage related securities. There are no subprime assets supporting any of the Company’s securities. Management expects that all principal will be repaid at a par value at the date of maturity. The Company has the intent and ability to hold these temporarily impaired securities until fair value is recovered.

	December 31, 2008
	Less Than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
						(In thousands)
Mortgage-backed securities of U.S. Government Sponsored Entities	$	7,714	$	(6	)	$	—	$	—		$	7,714	$	(6	)
Collateralized mortgage obligations of U.S. Government Sponsored Entities		12,450		(176	)		1,914		(49	)		14,364		(225	)
Private collateralized mortgage obligations		—		—			42,983		(4,410	)		42,983		(4,410	)
Obligations of state and political subdivisions		503		(1	)		1,517		(7	)		2,020		(8	)
Total temporarily impaired securities	$	20,667	$	(183	)	$	46,414	$	(4,466	)	$	67,081	$	(4,649	)

	December 31, 2007
	Less Than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	90,009	$	(688	)	$	155	$	—		$	90,164	$	(688	)
Private collateralized mortgage obligations		—		—			53,167		(572	)		53,167		(572	)
Obligations of state and political subdivisions		204		—			1,253		(8	)		1,457		(8	)
Total temporarily impaired securities	$	90,213	$	(688	)	$	54,575	$	(580	)	$	144,788	$	(1,268	)

Market changes in interest rates and market changes in credit spreads will result in temporary unrealized losses. The unrealized losses in the U.S. Government entities and mortgage-backed securities were primarily caused by changes in credit spreads. Because the decline in fair value is attributable to temporary changes in credit spreads, these investments are not considered other-than-temporarily impaired.

Trading securities purchased during 2007 consisted of U.S. Treasury bills, notes and U.S. Government entities notes and were primarily used for customer repurchase agreements and pledging requirements. At December 31, 2007 the trading portfolio consisted of $13.9 million in U.S. Treasury notes with maturities of less than five months.

Included in other assets is $12.8 million and $12.6 million at December 31, 2008 and December 31, 2007, respectively, of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value.

72

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note E   Loans

An analysis of loans at December 31 are summarized as follows:

	2008		2007
	(In thousands)
Real estate mortgage	$	1,125,465	$	1,074,814
Construction and land development		395,243		609,567
Commercial and financial		82,765		126,695
Installment loans to individuals		72,908		86,362
Other		347		951
TOTAL	$	1,676,728	$	1,898,389

One of the sources of the Company’s business is loans to directors and executive officers. The aggregate dollar amount of these loans was approximately $11,426,000 and $10,731,000 at December 31, 2008 and 2007, respectively. During 2008, $2,711,000 of new loans were made and repayments totaled $2,016,000.

At December 31, 2008 and 2007, participations of loans sold totaled $21,789,000 and $22,754,000, respectively, while loans purchased totaled $35,968,000 and $51,948,000, respectively. At December 31, 2008 and 2007, loan syndications sold totaled $10,326,000 and $10,429,000, while loan syndications purchased totaled $22,375,000 and $22,288,000, respectively.

At December 31, 2008 and December 31, 2007, $65 million of loans were pledged as collateral for borrowings.

Note F   Impaired Loans and Allowance for Loan Losses

At December 31, 2008 and 2007, the Company’s recorded investment in impaired loans and related valuation allowance was as follows:

	2008				2007
	Recorded		Valuation		Recorded		Valuation
	Investment		Allowance		Investment		Allowance
			(In thousands)
Impaired loans	$	101,424	$	5,152	$	67,762	$	4,183

Impaired loans also include loans that have been modified in troubled debt restructurings where concessions to borrowers who experienced financial difficulties have been granted.

The valuation allowance is included in the allowance for loan losses. The average recorded investment in impaired loans for the years ended December 31, 2008, 2007 and 2006 was $74,287,000, $22,238,000 and $2,119,000, respectively. The impaired loans were measured for impairment based primarily on the value of underlying collateral.

Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions to principal. For the year ended December 31, 2008, the Company recorded $673,000 in interest income on impaired loans. No interest income on impaired loans was recorded in the years ended December 31, 2007 and 2006.

In 2008 and 2007 impaired loans with valuation allowances totaled approximately $39.4 million and $30.2 million respectively.

73

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The nonaccrual loans and accruing loans past due 90 days or more for the year ended December 31, 2008 were $86,970,000 and $1,838,000, respectively, were $67,834,000 and $25,000, respectively, at the end of 2007 and were $12,465,000 and $64,000, respectively, at year end 2006.

Seacoast National entered into a formal agreement with the OCC on December 16, 2008 to improve Seacoast National’s asset quality. Under the formal agreement, Seacoast National’s board of directors has appointed a compliance committee to monitor and coordinate Seacoast National’s performance under the formal agreement in December 2008. The formal agreement provides for the development and implementation of written programs to reduce Seacoast National’s credit risks, monitor and reduce the level of criticized assets, and manage commercial real estate (“CRE”) loan concentrations in light of current adverse CRE market conditions.

Transactions in the allowance for loan losses for the three years ended December 31, are summarized as follows:

	2008			2007			2006
	(In thousands)
Balance, beginning of year	$	21,902		$	14,915		$	9,006
Provision charged to operating expense		88,634			12,745			3,285
Allowance for loan losses of acquired banks		—			—			2,518
Charge offs		(83,379	)		(5,950	)		(311	)
Recoveries		2,231			192			417
Balance, end of year	$	29,388		$	21,902		$	14,915

Note G   Bank Premises and Equipment

Bank premises and equipment are summarized as follows:

			Accumulated			Net
			Depreciation &			Carrying
	Cost		Amortization			Value
			(In thousands)
December 31, 2008
Premises (including land of $10,162)	$	51,342	$	(14,865	)	$	36,477
Furniture and equipment		20,964		(13,319	)		7,645
	$	72,306	$	(28,184	)	$	44,122
December 31, 2007
Premises (including land of $10,075)	$	47,525	$	(14,181	)	$	33,344
Furniture and equipment		19,761		(12,179	)		7,582
	$	67,286	$	(26,360	)	$	40,926

Note H   Goodwill and Other Intangible Assets

Changes in the carrying amount (in thousands) of goodwill for the years ended December 31, 2008 and 2007 are presented below.

74

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Balance, December 31, 2006	$	49,401
Purchase accounting adjustments		412
Balance, December 31, 2007		49,813
Additions to goodwill, net		—
Balance, December 31, 2008	$	49,813

The gross carrying amount and accumulated amortization for each of the Company’s identified intangible assets subject to amortization at December 31, 2008 and 2007, are presented below.

	December 31, 2008					December 31, 2007
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
			(In thousands)
Deposit base intangible	$	9,494	$	(4,114	)	$	9,494	$	(2,855	)

Intangible amortization expense related to identified intangible assets for each of the years in the three-year period ended December 31, 2008, is presented below.

	Year Ended December 31
	2008		2007		2006
	(In thousands)
Intangible Amortization
Identified intangible assets
Deposit base	$	1,259	$	1,259	$	1,063

The estimated annual amortization expense for identified intangible assets determined using the straight line method in each of the five years subsequent to December 31, 2008, is as follows (in thousands): 2009, $1,259; 2010, $985; 2011, $847; 2012, $788 and 2013, $783.

Note I   Borrowings

All of the Company’s short-term borrowings were comprised of federal funds purchased and securities sold under agreements to repurchase with maturities primarily from overnight to seven days:

	2008			2007			2006
				(In thousands)
Maximum amount outstanding at any month end	$	157,496		$	220,940		$	206,476
Weighted average interest rate at end of year		0.38	%		3.12	%		4.79	%
Average amount outstanding	$	91,134		$	148,610		$	119,045
Weighted average interest rate		1.61	%		4.48	%		4.30	%

On July 31, 1998, the Company obtained $15,000,000 in other borrowings from the Federal Home Loan Bank (FHLB), principal payable on November 12, 2009 with interest payable quarterly at a fixed rate of 6.10 percent. During 2007, the Company obtained advances of $25,000,000 each on September 25, 2007 and November 27, 2007, increasing total borrowings from the FHLB to $65,000,000 at December 31, 2007. The advances mature in ten years on September 15, 2017 and November 27, 2017, respectively, and have fixed rates of 3.64 percent and 2.70 percent at December 31, 2008, respectively, payable quarterly; the FHLB has a perpetual three-month option to convert the interest rate on either advance to an adjustable rate and the Company has the option to prepay the advance should the FHLB convert the interest rate.

The Company’s subsidiary bank has unused lines of credit of $533,958,000 at December 31, 2008.

75

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company issued $20,619,000 in junior subordinated debentures on March 31 and December 16, 2005, an aggregate of $41,238,000. These debentures were issued in conjunction with the formation of a Delaware and Connecticut trust subsidiary, SBCF Capital Trust I, and II (“Trusts I and II”) which each completed a private sale of $20.0 million of floating rate preferred securities. On June 29, 2007, the Company issued an additional $12,372,000 in junior subordinated debentures which was issued in conjunction with the formation of a Delaware trust subsidiary, SBCF Statutory Trust III (“Trust III”), which completed a private sale of $12,000,000 million of floating rate trust preferred securities. The rates on the trust preferred securities are the 3-month LIBOR rate plus 175 basis points, the 3-month LIBOR rate plus 133 basis points, and the 3-month LIBOR rate plus 135 basis points, respectively. The rates, which adjust every three months, are currently 3.21 percent, 3.33 percent, and 3.35 percent, respectively, per annum. The trust preferred securities have original maturities of thirty years, and may be redeemed without penalty on or after June 10, 2010, March 15, 2011, and September 15, 2012, respectively, upon approval of the Federal Reserve Board. Distributions on the trust preferred securities are payable quarterly in March, June, September and December of each year. The Trusts also issued $619,000, $619,000 and $372,000, respectively, of common equity securities to the Company. The proceeds of the offering of trust preferred securities and common equity securities were used by Trusts I and II to purchase the $41.2 million junior subordinated deferrable interest notes issued by the Company, and by Trust III to purchase the $12.4 million junior subordinated deferrable interest notes issued by the Company, all of which have terms substantially similar to the trust preferred securities.

The Company has the right to defer payments of interest on the notes at any time or from time to time for a period of up to twenty consecutive quarterly interest payment periods. Under the terms of the notes, in the event that under certain circumstances there is an event of default under the notes or the Company has elected to defer interest on the notes, the Company may not, with certain exceptions, declare or pay any dividends or distributions on its capital stock or purchase or acquire any of its capital stock. The Company is current on the interest payment obligations and has not executed the right to defer interest payments on the notes.

The Company has entered into agreements to guarantee the payments of distributions on the trust preferred securities and payments of redemption of the trust preferred securities to the extent of any funds in the respective trusts. Under these agreements, the Company also agrees, on a subordinated basis, to pay expenses and liabilities of the Trusts other than those arising under the trust preferred securities. The obligations of the Company under the junior subordinated notes, the trust agreement establishing the Trusts, the guarantees and agreements as to expenses and liabilities, in aggregate, constitute a full and conditional guarantee by the Company of the Trusts’ obligations under the trust preferred securities.

Despite the fact that the accounts of the Trusts are not included in the Company’s consolidated financial statements, the $52.0 million in trust preferred securities issued by the Trusts are included in the Tier 1 capital of the Company as allowed by Federal Reserve Board guidelines.

Note J   Employee Benefits and Stock Compensation

The Company’s profit sharing plan which covers substantially all employees after one year of service includes a matching benefit feature for employees electing to defer the elective portion of their profit sharing compensation. In addition, amounts of compensation contributed by employees are matched on a percentage basis under the plan. The profit sharing contributions charged to operations were $1,362,000 in 2008, $1,187,000 in 2007, and $2,041,000 in 2006.

The Company’s stock option and stock appreciation rights plans were approved by the Company’s shareholders on April 25, 1991, April 25, 1996, April 20, 2000 and May 8, 2008. The number of shares of common stock that may be granted pursuant to the 1991 and 1996 plans shall not exceed 990,000 shares for each plan, pursuant to the 2000 plan shall not exceed 1,320,000 shares, and pursuant to the 2008 plan, shall

76

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

not exceed 1,500,000 shares. The Company has granted options and stock appreciation rights (“SSARs”) on 826,000, 933,000, 791,000 shares for the 1991, 1996 and 2000 plans, respectively, through December 31, 2008; no options or SSARs have been issued under the 2008 plan. Under the 2000 plan the Company issued 21,000 shares of restricted stock awards at $10.92 per share during 2008, granted SSARs of 306,000 shares at a weighted average fair value of $4.21 per share and issued 58,000 shares of restricted stock awards at $22.14 per share during 2007, granted options on 116,000 shares at a weighted average fair value of $5.71 per share and issued 21,000 shares of restricted stock awards at $26.72 per share during 2006. Under the plans, the option or SSARs exercise price equals the common stock’s market price on the date of the grant. All options issued prior to December 31, 2002 have a vesting period of four years and a contractual life of ten years. All options or SSARs issued after that have a vesting period of five years and a contractual life of ten years. To the extent the Company has treasury shares available, stock options exercised or stock grants awarded may be issued from treasury shares or, if treasury shares are insufficient, the Company can issue new shares. The Company has a single share repurchase program in place, approved on September 18, 2001, authorizing the repurchase of up to 825,000 shares; the maximum number of shares that may yet be purchased under this program is 158,000. Under TARP and Federal Reserve policy, the Company’s stock repurchases are limited.

The Company did not grant any stock options or SSARS in 2008. Stock option fair value is measured on the date of grant using the Black-Scholes option pricing model with market assumptions. Option pricing models require the use of highly subjective assumptions, including expected price volatility, which when changed can materially affect fair value estimates. Accordingly, the model does not necessarily provide a reliable single measure of the fair value of the Company’s stock options or SSARs. The more significant assumptions used in estimating the fair value of stock options and SSARs include risk-free interest rates of 4.50 percent in 2007 and 5.10 percent to 5.18 percent in 2006; dividend yield of 2.72 percent in 2007 and 2.19 percent to 2.25 percent in 2006; weighted average expected lives of the stock options of 5 years and 7 years in 2007 and 2006; and volatility of the Company’s common stock of 19 percent in 2007 and 18 percent in 2006. Additionally, the estimated fair value of stock options and SSARs is reduced, as applicable, by an estimate of forfeiture experience of 10 percent in 2007 and 22 percent for 2006.

The following table presents a summary of stock option and SSARs activity for the year ended December 31, 2008:

				Option or				Aggregate
	Number of			SSAR Price		Weighted Average		Intrinsic
	Shares			Per Share		Exercise Price		Value
Dec. 31, 2005		737,000		$	6.59 — $22.92	$	13.22	$	7,171,000
Granted		116,000			26.72 — 27.36		26.74
Exercised		(99,000	)		6.59 — 22.40		7.59
Cancelled		(4,000	)		17.08 — 22.40		19.74
Dec. 31, 2006		750,000			6.59 — 27.36		16.03	$	6,577,000
Granted		306,000			22.16 — 22.22		22.22
Exercised		(178,000	)		7.73 — 22.40		11.68
Cancelled		(34,000	)		17.08 — 26.72		23.53
Dec. 31, 2007		844,000			7.46 — 27.36		18.89	$	277,000
Granted		0			0		0
Exercised		(71,000	)		8.79		8.79
Expired		(86,000	)		8.79		8.79
Cancelled		(76,000	)		17.08 — 26.72		22.26
Dec. 31, 2008		611,000			7.46 — 27.36		21.06	$	0

77

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash received for stock options exercised during 2008 totaled $627,000; the intrinsic value of options exercised totaled $144,000 based on market price at the date of exercise. No windfall tax benefits were realized from the exercise of the stock options and no cash was utilized to settle equity instruments granted under stock option awards.

The following table summarizes information about stock options outstanding and exercisable at December 31, 2008:

Options / SSARs Outstanding		Options / SSARs Exercisable (Vested)
	Weighted Average		Weighted	Weighted Average
Number of	Remaining	Number of	Average	Remaining	Aggregate
Shares	Contractual Life	Shares	Exercise	Contractual Life	Intrinsic
Outstanding	in Years	Exercisable	Price	in Years	Value
611,000	6.74	267,000	18.52	5.07	$0

Since December 31, 2007 no new stock options or SSARs were issued, stock options and SSARs totaling 54,000 shares vested, stock options and SSARS totaling 86,000 shares expired and stock options and SSARs totaling 76,000 shares were cancelled.

Adjusting for potential forfeiture experience, non-vested stock options and SSARs for 309,000 shares were outstanding at December 31, 2008 and are as follows:

	Weighted			Weighted
Number of	Average		Remaining	Average
Non-Vested	Remaining	Weighted	Unrecognized	Remaining
Stock Options	Contractual Life	Average	Compensation	Recognition
and SSARs	In Years	Fair Value	Cost	Period in Years
309,000	7.98	4.45	$1,001,000	2.98

The total intrinsic value of stock options exercised in 2007 and 2006 was $1.9 million in both years.

Since December 31, 2007, restricted stock awards on 21,000 shares have been issued, 32,000 awards have vested and 74,000 awards were forfeited. Non-vested restricted stock awards for a total of 108,000 shares were outstanding at December 31, 2008, 84,000 less than at December 31, 2007, and are as follows:

Number of
Non-Vested	Remaining	Weighted Average
Restricted Stock	Unrecognized	Remaining Recognition
Award Shares	Compensation Cost	Period in Years
108,000	$1,002,000	3.10

On approximately one-quarter of the restricted stock awards the restriction expiration is dependent upon the Company achieving minimum earnings per share growth during a five-year vesting period, ending December 31, 2009.

In 2008, 2007 and 2006 the Company recognized $1,095,000 ($673,000 after tax), $735,000 ($452,000 after tax) and $1,046,000 ($742,000 after tax), respectively of non-cash compensation expense.

No cash was utilized to settle equity instruments granted under restricted stock awards. No compensation cost has been capitalized and no significant modifications have occurred with regard to the contractual terms for stock options, SSARs or restricted stock awards.

Note K   Lease Commitments

The Company is obligated under various noncancellable operating leases for equipment, buildings, and land. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of

78

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the lease. At December 31, 2008, future minimum lease payments under leases with initial or remaining terms in excess of one year are as follows:

	(In thousands)
2009	$	3,503
2010		2,518
2011		2,424
2012		2,393
2013		2,233
Thereafter		21,974
	$	35,045

Rent expense charged to operations was $4,402,000 for 2008, $4,092,000 for 2007 and $3,463,000 for 2006. Certain leases contain provisions for renewal and change with the consumer price index.

Certain property is leased from related parties of the Company. Lease payment to these individuals were $326,000 in 2008, $308,000 in 2007 and $285,000 in 2006.

Note L   Income Taxes

The provision (benefit) for income taxes is as follows:

	Year Ended December 31
	2008			2007			2006
	(In thousands)
Current
Federal	$	(22,217	)	$	9,036		$	13,760
State		(76	)		(4	)		744
Deferred
Federal		(246	)		(3,465	)		(1,327	)
State		439			(1,169	)		(218	)
	$	(22,100	)	$	4,398		$	12,959

79

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The difference between the total expected tax expense (computed by applying the U.S. Federal tax rate of 35% to pretax income in 2008, 2007 and 2006) and the reported income tax expense relating to income before income taxes is as follows:

	Year Ended December 31
	2008			2007			2006
				(In thousands)
Tax rate applied to income before income taxes	$	(23,694	)	$	4,957		$	12,885
Increase (decrease) resulting from the effects of:
Tax exempt interest on obligations of states and political subdivisions		(186	)		(197	)		(165	)
State income taxes		1,726			410			(184	)
Stock compensation		162			148			75
Other		(471	)		253			(178	)
Federal tax provision (benefit)		(22,463	)		5,571			12,433
State tax provision (benefit)		363			(1,173	)		526
Applicable income taxes	$	(22,100	)	$	4,398		$	12,959

The net deferred tax assets (liabilities) are comprised of the following:

	December 31
	2008			2007
	(In thousands)
Allowance for loan losses	$	11,911		$	8,603
Accrued interest and fee income		104			1,658
Other real estate owned		24			19
Capital losses		386			—
Accrued stock compensation		299			201
State tax loss carryforward		3,765			561
Deferred compensation		1,153			1,023
Gross deferred tax assets		17,642			12,065
Accumulated depreciation		(2,453	)		(1,870	)
Deposit base intangible		(2,052	)		(2,429	)
Net unrealized securities gains		(1,286	)		(188	)
Other		(91	)		(103	)
Gross deferred tax liabilities		(5,882	)		(4,590	)
Tax effects of future taxable differences and carryforwards		11,760			7,475
Deferred tax asset valuation allowance		(5,576	)		—
Net deferred tax assets	$	6,184		$	7,475

Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset of $6.2 million is more likely than not based on expectations as to future taxable income and available tax planning strategies, as defined in SFAS 109, that could be implemented if necessary to prevent a carryforward from expiring. The Company’s net deferred tax asset (DTA) of $6.2 million consists of approximately $5.2 million of net U.S. federal DTAs, $6.6 million of net state DTAs and $5.6 million state DTA valuation allowance.

80

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As a result of the losses incurred in 2008, the Company is in a three-year cumulative pretax loss position at December 31, 2008. A cumulative loss position is considered significant negative evidence in assessing the realizability of a DTA. The positive evidence that can be used to offset this negative evidence can include forecasts of sufficient taxable income in the carryforward period, exclusive of tax planning strategies and sufficient tax planning strategies that could produce income sufficient to fully realize the DTAs. In general, the Company would need to generate approximately $18 million of taxable income during the respective carryforward periods to fully realize its federal DTAs , and $119 million to realize its state DTAs. The Company believes all of the federal DTAs can be realized from tax planning strategies while only a portion of the state DTAs would be realized and therefore a valuation allowance of $5.6 million was recorded. The use of the Company’s forecast of future taxable income was not considered sufficient positive evidence at this time given the uncertain economic conditions. The amount of the deferred tax asset considered realizable, however, could be reduced if estimates of future taxable income from tax planning strategies during the carryforward period are lower than forecasted due to further deterioration in market conditions.

The Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) which clarifies the criteria for recognizing tax benefits under FASB Statement No. 109, “Accounting for Income Taxes”. The Company adopted the interpretation in the first quarter 2007 with no material impact on its consolidated financial position, results of operations or liquidity. The Company recognizes interest and penalties related, as appropriate, as part of the provisioning for income taxes. Interest of $7,000 and $13,000 was accrued during 2008 and 2007, respectively, and is outstanding at December 31, 2008. The Internal Revenue Service (IRS) examined the federal income tax return for the year 2003. The IRS did not propose any material adjustments related to this examination. The following are the major tax jurisdictions in which the Company operates and the earliest tax year subject to examination:

Jurisdiction	Tax Year
United States of America		2005
Florida		2005

The Company has unrecognized income tax benefits of $99,000 related to uncertain income tax positions related to year end 2007. The positions will be monitored prospectively and the benefit recorded should unambiguous interpretation of law and regulation, a review by the taxing authority, or relevant circumstances, including expiration of the statute of limitation, deem recognition of the benefit. The Company expects no changes in the gross balance of unrecognized tax benefits within the next 12 months.

Income taxes or (benefit) related to securities transactions were $137,000, $(1,795,000) and $(60,000) in 2008, 2007 and 2006, respectively. Of the amount recorded for 2007, a tax benefit of $(1,822,000) was recorded for losses related to the securities portfolio restructuring during the first quarter. The Company sold approximately $225 million in low yielding securities and recorded other-than-temporary impairment of $5.1 million during the first quarter of 2007.

81

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note M   Noninterest Income and Expenses

Details of noninterest income and expense follow:

	Year Ended December 31
	2008		2007			2006
	(In thousands)
Noninterest income
Service charges on deposit accounts	$	7,389	$	7,714		$	6,784
Trust fees		2,344		2,575			2,858
Mortgage banking fees		1,118		1,409			1,131
Brokerage commissions and fees		2,097		2,935			3,002
Marine finance fees		2,304		2,865			2,709
Debit card income		2,453		2,306			2,149
Other deposit based EFT fees		359		451			421
Merchant income		2,399		2,841			2,545
Gain on sale of partnership interest		—		—			1,147
Other		1,102		1,814			1,514
		21,565		24,910			24,260
Securities gains (losses), net		355		(5,048	)		(157	)
TOTAL	$	21,920	$	19,862		$	24,103
Noninterest expense
Salaries and wages	$	30,159	$	31,575		$	29,146
Employee benefits		7,173		7,337			7,322
Outsourced data processing costs		7,612		7,581			7,443
Telephone/data lines		1,896		1,905			1,836
Occupancy		8,292		7,677			7,435
Furniture and equipment		2,841		2,863			2,523
Marketing		2,614		3,075			4,359
Legal and professional fees		5,662		4,070			2,792
FDIC assessments		2,028		225			325
Amortization of intangibles		1,259		1,259			1,063
Other		8,678		9,856			8,801
TOTAL	$	78,214	$	77,423		$	73,045

Note N   Shareholders’ Equity

The Company has reserved 330,000 common shares for issuance in connection with an employee stock purchase plan and 495,000 common shares for issuance in connection with an employee profit sharing plan. At December 31, 2008 an aggregate of 116,279 shares and 172,949 shares, respectively, have been issued as a result of employee participation in these plans.

In December 2008, in connection with the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, established as part of the Emergency Economic Stabilization Act of 2008, the Company issued to the U.S. Treasury Department (U.S. Treasury) 2,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (“Series A Preferred Stock”) with a par value of $0.10 per share for $43.787 million. The

82

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Series A Preferred Stock initially pays quarterly dividends at a five percent annual rate that increases to nine percent after five years on a liquidation preference of $25,000 per share. In connection with this investment, the Company also issued to the U.S. Treasury a 10-year warrant to purchase approximately 1,179,245 shares of common stock at an exercise price of $6.36 per share for $6.245 million. Upon the request of the U.S. Treasury, at any time, the Company has agreed to enter into a deposit arrangement pursuant to which the Series A Preferred Stock may be deposited and depository shares may be issued. The Corporation has registered the Series A Preferred Stock, the warrant, the shares of common stock underlying the warrant and the depository shares, if any, for resale under the Securities Act of 1933.

Based on a Black Scholes options pricing model, the common stock warrants have been assigned a fair value of $5.30 per share. As a result, $6.245 million has been recorded as the discount on the preferred stock and will be accreted as a reduction in net income available for common shareholders over the next five years at approximately $1.2 million per year. The fair value of the common stock warrants was estimated using the Black-Scholes option pricing model and the following assumptions:

Risk free interest rate		2.17	%
Expected life of options		10 years
Expected dividend yield		0.63	%
Expected volatility		28	%
Weighted average fair value	$	5.30

Holders of common stock are entitled to one vote per share on all matters presented to shareholders as provided in the Company’s Articles of Incorporation. The Company implemented a dividend reinvestment plan during 2007, issuing approximately 10,000 and 6,000 shares from treasury stock during the years 2008 and 2007, respectively.

83

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Required Regulatory Capital

											Minimum To Be Well
											Capitalized Under Prompt
						Minimum for Capital					Corrective Action
						Adequacy Purpose					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousand)
SEACOAST BANKING CORP (CONSOLIDATED)
At December 31, 2008:
Total Capital (to risk-weighted assets)	$	231,389		14.00	%	$	132,134		³8.00	%		N/A		N/A
Tier 1 Capital (to risk-weighted assets)		210,634		12.75			66,067		³4.00	%		N/A		N/A
Tier 1 Capital (to adjusted average assets)		210,634		9.58			87,803		³4.00	%		N/A		N/A
At December 31, 2007:
Total Capital (to risk-weighted assets)	$	232,080		12.17	%	$	152,598		³8.00	%		N/A		N/A
Tier 1 Capital (to risk-weighted assets)		209,655		10.99			76,299		³4.00	%		N/A		N/A
Tier 1 Capital (to adjusted average assets)		209,655		9.10			92,185		³4.00	%		N/A		N/A
SEACOAST NATIONAL BANK (A WHOLLY OWNED BANK SUBSIDIARY)
At December 31, 2008:
Total Capital (to risk-weighted assets)	$	192,023		11.64	%	$	131,982		³8.00	%	$	164,977		³10.00	%
Tier 1 Capital (to risk-weighted assets)		171,292		10.38			65,991		³4.00	%		98,986		³6.00	%
Tier 1 Capital (to adjusted average assets)		171,292		7.80			87,909		³4.00	%		109,886		³5.00	%
At December 31, 2007:
Total Capital (to risk-weighted assets)	$	229,865		12.06	%	$	152,434		³8.00	%	$	190,542		³10.00	%
Tier 1 Capital (to risk-weighted assets)		207,440		10.89			76,217		³4.00	%		114,325		³6.00	%
Tier 1 Capital (to adjusted average assets)		207,440		9.01			92,118		³4.00	%		115,148		³5.00	%

N/A — Not Applicable

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 2008, that the Company meets all capital adequacy requirements to which it is subject.

84

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company is well capitalized. To be categorized as well capitalized, the Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth above. At December 31, 2008, the Company’s deposit-taking bank subsidiary met the risk-baed capital and leverage ratio requirements for well capitalized banks under the regulatory framework for prompt corrective action.

The Bank has agreed to maintain a Tier 1 capital (to adjust average assets) ratio of at least 7.50% and a total risk-based capital ratio of at least 12.00% as of March 31, 2009 with its primary regulator the OCC. The agreement with the OCC as to minimum capital ratios does not change the Bank’s status as “well-capitalized” for bank regulatory purposes.

Note O

Seacoast Banking Corporation of Florida

(Parent Company Only) Financial Information

Balance Sheets

	December 31
	2008		2007
	(In thousands)
ASSETS
Cash	$	38,010	$	10
Securities purchased under agreement to resell with subsidiary bank, maturing within 30 days		1,168		1,868
Investment in subsidiaries		230,268		265,776
Other assets		277		441
	$	269,723	$	268,095
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debt	$	53,610	$	53,610
Other liabilities		112		104
Shareholders’ equity		216,001		214,381
	$	269,723	$	268,095

85

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Statements of Income

	Year Ended December 31
	2008			2007			2006
	(In thousands)
Income
Dividends from subsidiary Bank	$	6,813		$	14,223		$	12,705
Interest/other		108			390			451
		6,921			14,613			13,156
Interest expense		2,614			3,716			3,508
Other expenses		697			545			580
Income before income tax benefit and equity in undistributed income (losses) of subsidiaries		3,610			10,352			9,068
Income tax benefit		1,121			1,355			1,274
Income before equity in undistributed income (losses) of subsidiaries		4,731			11,707			10,342
Equity in undistributed income (losses) of subsidiaries		(50,328	)		(1,942	)		13,512
Net (loss) income	$	(45,597	)	$	9,765		$	23,854

86

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Statement of Cash Flows

	Year Ended December 31
	2008			2007			2006
	(In thousands)
Cash flows from operating activities
Interest received	$	108		$	390		$	310
Interest paid		(2,650	)		(3,695	)		(3,492	)
Dividends received		6,813			14,223			12,705
Income taxes received		1,150			1,233			1,706
Fees received		—			—			137
Other		(629	)		255			(328	)
Net cash provided by operating activities		4,792			12,406			11,038
Cash flows from investing activities
Decrease (increase) in securities purchased under agreement to resell, maturing within 30 days, net		700			2,634			(1,487	)
Payment to dissenting shareholders of Century National Bank		—			—			(109	)
Investments in subsidiaries		(12,000	)		(3,402	)		(5,977	)
Net cash used in investment activities		(11,300	)		(768	)		(7,573	)
Cash flows from financing activities
Proceeds from (repayment of) borrowing		—			(12,000	)		6,000
Issuance of subordinated debt		—			12,000			—
Issuance of U.S. Treasury preferred stock and warrants		50,000			—			—
Stock based employment plans		908			450			1,760
Dividend reinvestment plan		89			92			—
Dividends paid		(6,489	)		(12,180	)		(11,225	)
Net cash provided by (used in) financing activities		44,508			(11,638	)		(3,465	)
Net change in cash		38,000			—			—
Cash at beginning of year		10			10			10
Cash at end of year	$	38,010		$	10		$	10
RECONCILIATION OF INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
Net (loss) income	$	(45,597	)	$	9,765		$	23,854
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in undistributed (income) losses of subsidiaries		50,328			1,942			(13,512	)
Other, net		61			699			696
Net cash provided by operating activities	$	4,792		$	12,406		$	11,038

Note P  Contingent Liabilities and Commitments with Off-Balance Sheet Risk

The Company and its subsidiaries, because of the nature of their business, are at all times subject to numerous legal actions, threatened or filed. Management presently believes that none of the legal proceedings to which it is a party are likely to have a materially adverse effect on the Company’s consolidated financial

87

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

condition, operating results or cash flows, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation.

The Company’s subsidiary bank is party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.

The subsidiary bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contract or notional amount of those instruments. The subsidiary bank uses the same credit policies in making commitments and standby letters of credit as they do for on balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, equipment, and commercial and residential real estate. Of the $206,595,000 in commitments to extend credit outstanding at December 31, 2008, $86,408,000 is secured by 1-4 family residential properties for individuals with approximately $24,447,000 at fixed interest rates ranging from 4.375% to 7.50%.

Standby letters of credit are conditional commitments issued by the subsidiary bank to guarantee the performance of a customer to a third party. These instruments have fixed termination dates and most end without being drawn; therefore, they do not represent a significant liquidity risk. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The subsidiary bank holds collateral supporting these commitments for which collateral is deemed necessary. The extent of collateral held for secured standby letters of credit at December 31, 2008 and 2007 amounted to $24,792,000 and $10,704,000 respectively.

	December 31
	2008		2007
	(In thousands)
Contract or Notional Amount
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	206,595	$	351,053
Standby letters of credit and financial guarantees written:
Secured		6,238		7,566
Unsecured		1,620		725

88

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note Q   Supplemental Disclosures for Consolidated Statements of Cash Flows

Reconciliation of Net Income to Net Cash Provided by Operating Activities for the three years ended:

	Year Ended December 31
	2008			2007			2006
	(In thousands)
Net Income (Loss)	$	(45,597	)	$	9,765		$	23,854
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation		3,462			3,195			2,839
Amortization of premiums and discounts on securities		(512	)		(1,249	)		(54	)
Other amortization and accretion		589			136			(11	)
Trading securities activity		14,000			(9,270	)		—
Change in loans held for sale, net		1,495			2,228			(3,448	)
Provision for loan losses, net		88,634			12,745			3,285
Gain on sale of partnership interest		—			—			(1,147	)
Deferred tax benefit		(6,773	)		(4,634	)		(1,545	)
Loss (gain) on sale of securities		(355	)		(5,048	)		157
Gain on sale of loans		(38	)		(28	)		(44	)
Loss (gain) on sale or write down of foreclosed assets		677			50			(12	)
Loss (gain) on disposition of equipment		(37	)		(119	)		181
Stock based employee benefit expense		1,095			735			1,046
Change in interest receivable		1,688			458			(1,687	)
Change in interest payable		(313	)		273			461
Change in prepaid expenses		140			(105	)		(2,311	)
Change in accrued taxes		(17,204	)		(1,596	)		654
Change in other assets		232			(872	)		(1,903	)
Change in other liabilities		490			(12	)		(1,414	)
Net cash provided by operating activities	$	41,673		$	16,748		$	18,901
Supplemental disclosure of non cash investing activities
Fair value adjustment to securities	$	3,037		$	859		$	2,242
Transfers from loans to other real estate owned		8,092			817			139
Transfers from securities available for sale to trading securities		—			3,974			—

Note R   Fair Value

Fair Value Instruments Measured at Fair Value

As discussed in Note A, “Accounting Policies,” to the Consolidated Financial Statements, the Company adopted the fair value financial accounting standards SFAS No. 157 and SFAS No. 159 as of January 1, 2007. In certain circumstances, fair value enables a company to more accurately align its financial performance with the market value of actively traded or hedged assets and liabilities. Fair values enable a company to mitigate the non-economic earnings volatility caused from financial assets and financial liabilities being carried at different bases of accounting, as well as to more accurately portray the active and dynamic management of a company’s balance sheet. No financial instruments were selected for the fair value option at the time of adoption.

89

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For derivative product assets and loans available for sale, the realized and unrealized gains and losses are included in earnings in noninterest income or net interest income, as appropriate, and were not material for the year ended December 31, 2008.

Fair value measurements for items measured at fair value included:

	Fair Value		Significant Other		Significant
	Measurements		Observable		Unobservable
	December 31, 2008		Inputs**		Inputs***
	(Dollars in thousands)
Available for sale securities	$	318,030	$	318,030
Loans available for sale		2,165		2,165
Loans(2)		66,586		11,838		54,748
Derivative product assets		336		336
OREO(1)		5,035		5,035

	Fair Value		Quoted Prices in		Significant Other		Significant
	Measurements		Active Markets for		Observable		Unobservable
	December 31, 2007		Identical Assets*		Inputs**		Inputs***
	(Dollars in thousands)
Trading securities	$	13,913	$	13,913
Available for sale securities		254,916		254,916
Loans available for sale		3,660			$	3,660
Loans(2)		25,856				514		25,342
Derivative product assets		46				46
OREO(1)		735				735

*	Level 1 inputs
**	Level 2 inputs
***	Level 3 inputs
(1)	Fair value is measured on a nonrecurring basis in accordance with SFAS No. 144
(2)	See Note F. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write-downs that are based on the loan’s observable market price or current appraised value of the collateral in accordance with SFAS 114, Accounting by Creditors for Impairment of a Loan. When appraisals are used to determine fair value and the appraisals are based on a market approach, the related loan’s fair value is classified as Level 2 input. The fair value of loans based on appraisals which require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, is classified as Level 3 inputs.

90

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The carrying value amounts and fair values of the Company’s financial instruments at December 31 were as follows:

	At December 31
	2008				2007
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In thousands)
Financial Assets
Cash and cash equivalents	$	151,192	$	151,192	$	98,475	$	98,475
Securities		345,901		344,139		300,729		300,511
Loans, net		1,647,340		1,663,408		1,876,487		1,878,775
Loans held for sale		2,165		2,165		3,660		3,660
Derivative product assets		336		336		46		46
Financial Liabilities Deposits		1,810,441		1,819,115		1,987,333		1,989,572
Borrowings		222,798		227,585		153,130		153,641
Subordinated debt		53,610		53,610		53,610		53,610

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value at December 31:

Cash and Cash Equivalents:  The carrying amount was used as a reasonable estimate of fair value.

Securities:  The fair value of U.S. Treasury and U.S. Government agency, mutual fund and mortgage backed securities are based on market quotations when available or by using a discounted cash flow approach.

The fair value of many state and municipal securities are not readily available through market sources, so fair value estimates are based on quoted market price or prices of similar instruments.

Loans:  Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, mortgage, etc. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.

The fair value of loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. For residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions using discount rates based on secondary market sources.

Loans held for Sale:  Fair values are based upon estimated values to be received from independent third party purchasers.

Deposit Liabilities:  The fair value of demand deposits, savings accounts and money market deposits is the amount payable at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

Borrowings:  The fair value of floating rate borrowings is the amount payable on demand at the reporting date. The fair value of fixed rate borrowings is estimated using the rates currently offered for borrowings of similar remaining maturities.

Subordinated Debt:  The fair value of the floating rate subordinated debt is the amount payable on demand at the reporting date.

Derivative Product Assets and Liabilities:  Quoted market prices or valuation models that incorporate current market data inputs are used to estimate the fair value of derivative product assets and liabilities.

91

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note S   Earnings Per Share

Basic earnings per common share were computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share were determined by including assumptions of stock option and warrant conversions.

In 2008, 2007 and 2006 common stock options and warrants to purchase 1,790,245, 669,000 and 116,000, respectively were antidilutive and accordingly, were excluded in determining diluted earnings per share.

	Year Ended December 31
	Net (Loss)					Per Share
	Income			Shares		Amount
	(Dollars in thousands, except per share data)
2008
Basic and Diluted Earnings Per Share
Loss available to common shareholders	$	(45,597	)		18,997,757	$	(2.41	)
2007
Basic Earnings Per Share
Income available to common shareholders	$	9,765			18,936,541	$	0.52
Employee restricted stock, stock options and SARs (see Note J)					221,056
Diluted Earnings Per Share
Income available to common shareholders plus assumed conversions	$	9,765			19,157,597	$	0.51
2006
Basic Earnings Per Share
Income available to common shareholders	$	23,854			18,305,258	$	1.30
Employee restricted stock, stock options and SARs (see Note J)					366,494
Diluted Earnings Per Share
Income available to common shareholders plus assumed conversions	$	23,854			18,671,752	$	1.28

92

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note T   Accumulated Other Comprehensive Income, Net

Comprehensive income is defined as the change in equity from all transactions other than those with stockholders, and it includes net income and other comprehensive income. Accumulated other comprehensive income, net, for each of the years in the three-year period ended December 31, 2008, is presented below.

				Income Tax
	Pre-tax			(Expense)			After-tax
	Amount			Benefit			Amount
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Accumulated other comprehensive income (loss), net, December 31, 2005		(6,194	)		2,340			(3,854	)
Net unrealized gain on securities		2,087			(793	)		1,294
Net (loss) gain on cash flow hedge derivatives		(19	)		7			(12	)
Reclassification adjustment for realized gains and losses on securities		336			(119	)		217
Accumulated other comprehensive income (loss), net, December 31, 2006		(3,790	)		1,435			(2,355	)
Net unrealized gain on securities		859			(343	)		516
Reclassification adjustment for realized gains and losses on securities		3,453			(1,280	)		2,173
Accumulated other comprehensive income, net, December 31, 2007		522			(188	)		334
Net unrealized gain on securities		3,037			(1,174	)		1,863
Reclassification adjustment for realized gains and losses on securities		(214	)		76			(138	)
Accumulated other comprehensive income, net, December 31, 2008	$	3,345			(1,286	)		2,059

93

EX-21

EXHIBIT 21

LIST OF SUBSIDIARIES

     The Company had the following subsidiaries as of the date of this report:

NAME			INCORPORATED
	1.	Seacoast National Bank	United States
	2.	FNB Brokerage Services, Inc.	Florida
	3.	FNB Insurance Services, Inc (inactive)	Florida
	4.	South Branch Building, Inc	Florida
	5.	FNB Property Holdings, Inc	Delaware
	6.	FNB RE Services, Inc	Florida
	7.	TCoast Holdings, LLC	Florida
	8.	BR West, LLC	Florida
	9.	SBCF Capital Trust I	Delaware
	10.	SBCF Statutory Trust II	Connecticut
	11.	SBCF Satutory Trust III	Delaware
	12.	SBCF Capital Trust IV	Delaware
	13.	SBCF Capital Trust V	Delaware

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Seacoast Banking Corporation of Florida:

We consent to the incorporation by reference in the registration statements (Nos. 33-61925, 333-70399, 333-91859, 333-49972, 333-137529, 333-151176, 333-152931, and 333-156803) on Form S-8 or Form S-3 of Seacoast Banking Corporation of Florida and subsidiaries (the Company) of our reports dated March 9, 2009, with respect to the consolidated balance sheets of the Company as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 annual report on Form 10-K of the Company.

As discussed in note R to the consolidated financial statements, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115, as of January 1, 2007.

Miami, Florida
March 9, 2009
Certified Public Accountants

EX-31.1

EXHIBIT 31.1

Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis S. Hudson, III, certify that:

1.	I have reviewed this annual report on Form 10-K of Seacoast Banking Corporation of Florida;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 4, 2009

/s/ Dennis S. Hudson, III  

Dennis S. Hudson, III 

Chairman & Chief Executive Officer 

EX-31.2

EXHIBIT 31.2

Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, William R. Hahl, certify that:

1.	I have reviewed this annual report on Form 10-K of Seacoast Banking Corporation of Florida;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 4, 2009

/s/ William R. Hahl  

William R. Hahl 

Chief Financial Officer 

EX-32.1

EXHIBIT 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER OF
SEACOAST BANKING CORPORATION OF FLORIDA
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 10-K of Seacoast Banking Corporation of Florida (“Company”) for the period ended December 31, 2008 (“Report”), I, Dennis S. Hudson, III , President and Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of The Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dennis S. Hudson, III                    
Dennis S. Hudson, III
Chairman and Chief Executive Officer

Date: March 4, 2009

     A signed original of this written statement required by § 906 of The Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by § 906 of The Sarbanes-Oxley Act of 2002, has been provided to Seacoast Banking Corporation of Florida and will be retained by Seacoast Banking Corporation of Florida and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

STATEMENT OF CHIEF FINANCIAL OFFICER OF
SEACOAST BANKING CORPORATION OF FLORIDA
PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 10-K of Seacoast Banking Corporation of Florida (“Company”) for the period ended December 31, 2008 (“Report”), I, William R. Hahl, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of The Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William R. Hahl                    
William R. Hahl
Executive Vice President and Chief Financial Officer

Date: March 4, 2009

     A signed original of this written statement required by § 906 of The Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by § 906 of The Sarbanes-Oxley Act of 2002, has been provided to Seacoast Banking Corporation of Florida and will be retained by Seacoast Banking Corporation of Florida and furnished to the Securities and Exchange Commission or its staff upon request.