10-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A

(Amendment No. 2)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

¨ 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	59-2260678
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

815 Colorado Avenue, Stuart, FL	34994
(Address of Principal Executive Offices)	(Zip Code)

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

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

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, Par Value $0.10	Nasdaq Global Select Market

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨        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  ¨         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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  þ        NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.     ¨

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  ¨	Accelerated filer  þ	Non-accelerated filer  ¨	Smaller reporting company  ¨
	(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  ¨        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, 2011, as reported on the Nasdaq Global Select Market, was $86,795,951.

The number of shares outstanding of Seacoast Banking Corporation of Florida common stock, par value $0.10 per share, as of March 7, 2012, was 94,705,727.

EXPLANATORY NOTE

Seacoast Banking Corporation of Florida (“Seacoast”) is filing this Amendment No. 2 on Form 10-K/A (the “amended Form 10-K/A”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2011 that was filed with the Securities and Exchange Commission (“SEC”) on March 14, 2012 (the “Original Form 10-K”) and the Amendment No. 1 on Form 10K/A filed on March 26, 2012. This amended Form 10-K/A is being filed solely to file:

• the signed report of Seacoast’s independent registered public accounting firm, KPMG LLP (“KPMG”), with KPMG’s conformed signature (Exhibit 13);

• KPMG’s signed attestation report on Seacoast’s internal control over financial reporting with KPMG’s conformed signature (Exhibit 13); and

• KPMG’s signed consent letter (Exhibit 23) with KPMG’s conformed signature.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), new certifications by our Principal Executive Officer and Principal Financial Officer are filed as exhibits to this amended Form 10-K/A under Item 15 of Part IV hereof.

For the convenience of the reader, this amended Form 10-K/A sets forth the full text of the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, in its entirety, as hereby amended. However, this amended Form 10-K/A amends only the items referenced above, and no other information in the Original Form 10-K is amended hereby. No other new exhibits are being filed herewith.

This amended Form 10-K/A does not reflect events occurring after the filing of the Original Form 10-K on March 14, 2012 and no attempt has been made in this Form 10-K/A to modify or update other disclosure as presented in the Original Form 10-K. Accordingly, this amended Form 10-K/A should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s 2012 Proxy Statement for the Annual Meeting of Shareholders to be held May 24, 2012 (the “2012 Proxy Statement”) are incorporated by reference into Part III, Items 10 through 14 of this report. Other than those portions of the 2012 Proxy Statement specifically incorporated by reference herein pursuant to Items 10 through 14, no other portions of the 2012 Proxy Statement shall be deemed so incorporated.

Certain portions of the registrant’s 2011 Annual Report to Shareholders for the fiscal year ended December 31, 2011 (the “2011 Annual Report”) are incorporated by reference into Part II, Items 6 through 8 of this report. Other than those portions of the 2011 Annual Report specifically incorporated by reference herein pursuant to Items 6 through 8, no other portions of the 2011 Annual Report shall be deemed so incorporated.

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TABLE OF CONTENTS

Part I
Item 1.	Business	6
Item 1A.	Risk Factors	27
Item 1B.	Unresolved Staff Comments	41
Item 2.	Properties	41
Item 3.	Legal Proceedings	44
Item 4.	Mine Safety Disclosures	44
Part II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	44
Item 6.	Selected Financial Data	46
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	46
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	46
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	47
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	47
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	47
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accountant Fees and Services	48
Part IV
Item 15.	Exhibits, Financial Statement Schedules	48

Certain statistical data required by the Securities and Exchange Commission are included on pages 14-55 of Exhibit 13.

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SPECIAL CAUTIONARY NOTICE

REGARDING FORWARD-LOOKING STATEMENTS

Various of the statements made herein under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Quantitative and Qualitative Disclosures about Market Risk”, “Risk Factors” and elsewhere, are “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to be covered by the safe harbor provided by the same.

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 to be materially different from those set forth in the 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,” “further,” “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 and changes, domestic and foreign, including seasonality;

• changes in governmental monetary and fiscal policies, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

• legislative and regulatory changes, including changes in banking, securities and tax laws and regulations and their application by our regulators, including those associated with the Dodd Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverage;

• changes in accounting policies, rules and practices and applications or determinations made thereunder;

• 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;

• changes in borrower credit risks and payment behaviors;

• 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 in the United States and in the communities we serve, which could impact write-downs of assets, our ability to liquidate non-performing assets, realized losses on the disposition of non-performing assets and increased credit losses;

• our ability to comply with any requirements imposed on us or on Seacoast National Bank (“Seacoast National”) by regulators and the potential negative consequences that may result;

• our concentration in commercial real estate loans;

• the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our loan portfolio stress test;

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

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• the impact on the valuation of our investments due to market volatility or counterparty payment risk;

• statutory and regulatory restrictions on our ability to pay dividends to our shareholders, including those imposed by our participation in the U.S. Department of the Treasury (the “Treasury”) Capital Purchase Program (“CPP”);

• any applicable regulatory limits on Seacoast National’s ability to pay dividends to us;

• increases in regulatory capital requirements for banking organizations generally, which may adversely affect our ability to expand our business or could cause us to shrink our business;

• 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;

• the risks that our deferred tax assets could be reduced if estimates of future taxable income from our operations and tax planning strategies are less than currently estimated, and sales of our capital stock could trigger a reduction in the amount of net operating loss carryforwards that we may be able to utilize for income tax purposes; 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 us 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, except as required by law.

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Part I

Item 1.    Business

General

We are a bank holding company, incorporated in Florida in 1983, and registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). 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”.

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.

As of December 31, 2011, we had total consolidated assets of approximately $2,137.4 million, total deposits of approximately $1,718.7 million, total consolidated liabilities, including deposits, of approximately $1,967.3 million and consolidated shareholders’ equity of approximately $170.1 million. Our operations are discussed in more detail under “Item 7. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations” incorporated by reference from our 2011 Annual Report.

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 to our customers. Seacoast National had 39 banking offices in 13 counties in Florida at year-end 2011. We have 23 branches in the “Treasure Coast,” including the counties of Martin, St. Lucie and Indian River on Florida’s southeastern coast.

Most of our banking offices have one or more automated teller machines (“ATMs”) providing 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 2.3 million participating ATMs and retail locations throughout the United States.

Seacoast National’s “MoneyPhone” system allows customers to access information on their loan or deposit account balances, transfer funds between linked accounts, make loan payments, and verify deposits or checks that may have cleared, all over the telephone. 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., EST 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 six indirect, wholly-owned subsidiaries:

• 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; and

• TCoast Holdings, LLC, BR West, LLC, TC Stuart, LLC and TC Property Ventures, LLC, each of which was formed to own and operate certain properties acquired through foreclosure.

We directly own all the common equity in five statutory trusts relating to our trust preferred securities:

• 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; and

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

The operations of each of these direct and indirect subsidiaries represented less than 10% of our consolidated assets and contributed less than 10% to our consolidated revenues.

FNB Brokerage Services, Inc. (“FNB Brokerage”), which provided brokerage and annuity services, was dissolved effective December 31, 2011. During 2011, employees of FNB Brokerage became dual employees of Seacoast National and Invest Financial Corporation, the company through which Seacoast National presently conducts its brokerage and annuity services.

We have operated an office of Seacoast Marine Finance Division, a division of Seacoast National, in Ft. Lauderdale, Florida since February 2000 and offices in California since November 2002. 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.

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 make available, free of charge on our corporate website, 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 filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.

Employees

As of December 31, 2011, we and our subsidiaries employed 420 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 continue to expand our products and services to meet the changing needs of the various segments of our market, and we presently expect to continue this strategy. We have expanded geographically primarily through the addition of de novo branches. We also from time to time have acquired banks, bank branches and deposits, and have opened new branches and loan production offices.

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, with nine offices in seven counties. 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 new offices in 14 counties of Florida. The Seacoast Marine Finance Division operates loan production offices, or “LPOs”, in Ft. Lauderdale, Florida, and Newport Beach and Alameda, California. For more information on our branches and offices see “Item 2. Properties”.

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

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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. Transactional fees from merchants, and ATM and debit card use also typically peak in the first and second quarters. Public deposits tend to increase with tax collections in the first and fourth quarters and decline as a result of spending thereafter.

Deposits also tend to increase due to hurricanes as insurers disburse insurance proceeds more quickly than hurricane-related damage is repaired. No major hurricanes occurred between 2006 and 2011; as a result, deposits were more typical than during 2004 and 2005, when major hurricanes hit our coastal market areas, leading to an increase in deposits.

Commercial and residential real estate activity, demand, prices and sales volumes are less seasonal and 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 of comparable or larger size in its markets, but also competes with various other nonbank financial institutions, including savings and loan associations, credit unions, mortgage companies, personal and commercial financial companies, investment brokerage and financial advisory firms and mutual fund companies. We compete 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. Continued consolidation within the financial services industry will most likely change the nature and intensity of competition that we face, but can also create opportunities for us to demonstrate and exploit competitive advantages.

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. 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 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.

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 below and is not intended to be an exhaustive description of the statutes or regulations applicable to us and Seacoast National’s business. As a bank holding company under federal law, we are subject to regulation, supervision and examination by the Federal Reserve. As a national bank, our primary bank subsidiary, Seacoast National, is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (“OCC”). In addition, as discussed in more detail below, Seacoast National and any other of our subsidiaries that offer consumer financial products could be subject to regulation, supervision, and examination by the newly established Consumer Financial Protection Bureau. Supervision, regulation, and examination of us, Seacoast National and our respective subsidiaries by the bank regulatory agencies are intended primarily for the protection of bank depositors and the Deposit Insurance Fund (“DIF”) of the FDIC rather than holders of our capital stock.

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The following summarizes certain of the more important statutory and regulatory provisions. Substantial changes to the regulatory framework applicable to us and our subsidiaries were recently passed by the U.S. Congress, and the majority of the recent legislative changes will be implemented over time by various regulatory agencies. For a discussion of such changes, see “Recent Regulatory Developments” below. The full effect of the changes in the applicable laws and regulations, as implemented by the regulatory agencies, cannot be fully predicted and could have a material adverse effect on our business and results of operations.

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, Nasdaq, and, more recently, the Treasury, since we are a participant in the Treasury’s Troubled Assets Relief Program (“TARP”) CPP. In particular, we are required to include management and independent registered public accounting firm 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, 2011 are included elsewhere in this report with no material weaknesses reported.

Recent Regulatory Developments

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

On July 21, 2010, President Obama signed into law the Dodd-Frank Act. The Dodd-Frank Act will have a broad impact on the financial services industry, imposing significant regulatory and compliance changes, the imposition of increased capital, leverage and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework of authority to conduct systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, (the “Oversight Council”), the Federal Reserve, the OCC and the FDIC. Provisions of the Dodd-Frank Act that may affect our operations or the operations of Seacoast National include:

• Creation of the Bureau of Consumer Financial Protection (“CFPB”) with centralized authority, including examination and enforcement authority, for consumer protection in the banking industry.

• New limitations on federal preemption.

• New prohibitions and restrictions on the ability of a banking entity and nonbank financial company to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund.

• Application of new regulatory capital requirements, including changes to leverage and risk-based capital standards and changes to the components of permissible tiered capital.

• Requirement that holding companies and their subsidiary banks be well capitalized and well managed in order to engage in activities permitted for financial holding companies.

• Changes to the assessment base for deposit insurance premiums.

• Permanently raising the FDIC’s standard maximum insurance amount to $250,000 and, through December 31, 2012, providing unlimited insurance coverage for noninterest-bearing demand transaction accounts.

• Repeal of the prohibition on the payment of interest on demand deposits, effective July 21, 2011, thereby permitting depository institutions to pay interest on business transaction and other accounts.

• Restrictions on compensation, including a prohibition on incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions that are deemed to be excessive, or that may lead to material losses.

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• Requirement that sponsors of asset-backed securities retain a percentage of the credit risk underlying the securities.

• Requirement that banking regulators remove references to and requirements of reliance upon credit ratings from their regulations and replace them with appropriate alternatives for evaluating creditworthiness.

The following items provide a further description of certain relevant provisions of the Dodd-Frank Act and their potential impact on our operations and activities, both currently and prospectively.

Creation of New Governmental Authorities.    The Dodd-Frank Act creates various new governmental authorities such as the Oversight Council and the CFPB, an independent regulatory authority housed within the Federal Reserve. The CFPB has broad authority to regulate the offering and provision of consumer financial products. The CFPB officially came into being on July 21, 2011, and rulemaking authority for a range of consumer financial protection laws (such as the Truth in Lending Act, the Electronic Funds Transfer Act and the Real Estate Settlement Procedures Act, among others) transferred from the federal prudential banking regulators to the CFPB on that date. The Dodd-Frank Act gives the CFPB authority to supervise and examine depository institutions with more than $10 billion in assets for compliance with these federal consumer laws. The authority to supervise and examine depository institutions with $10 billion or less in assets for compliance with federal consumer laws will remain largely with those institutions’ primary regulators. However, the CFPB may participate in examinations of these smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators. The CFPB also has supervisory and examination authority over certain nonbank institutions that offer consumer financial products. The Dodd-Frank Act identifies a number of covered nonbank institutions, and also authorizes the CFPB to identify additional institutions that will be subject to its jurisdiction. Accordingly, the CFPB may participate in examinations of Seacoast National, which currently has assets of less than $10 billion, and could supervise and examine our other direct or indirect subsidiaries that offer consumer financial products or services. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB, and state attorneys general are permitted to enforce consumer protection rules adopted by the CFPB against certain institutions.

Limitation on Federal Preemption.    The Dodd-Frank Act significantly reduces the ability of national banks to rely upon federal preemption of state consumer financial laws. Although the OCC will have the ability to make preemption determinations where certain conditions are met, the broad rollback of federal preemption has the potential to create a patchwork of federal and state compliance obligations. This could, in turn, result in significant new regulatory requirements applicable to us, with attendant potential significant changes in our operations and increases in our compliance costs. It could also result in uncertainty concerning compliance, with attendant regulatory and litigation risks.

Mortgage Loan Origination and Risk Retention.    The Dodd-Frank Act contains additional regulatory requirements that may affect our mortgage origination and servicing operations, result in increased compliance costs and may impact revenue. For example, in addition to numerous new disclosure requirements, the Dodd-Frank Act imposes new standards for mortgage loan originations on all lenders, including banks, in an effort to strongly encourage lenders to verify a borrower’s ability to repay. Most significantly, the new standards limit the total points and fees that we and/or a broker may charge on conforming and jumbo loans to 3% of the total loan amount. Also, the Dodd-Frank Act, in conjunction with the Federal Reserve’s final rule on loan originator compensation issued August 16, 2010 and effective April 1, 2011, prohibits certain compensation payments to loan originators and steering consumers to loans not in their interest because it will result in greater compensation for a loan originator. These standards will result in a myriad of new system, pricing, and compensation controls in order to ensure compliance and to decrease repurchase requests and foreclosure defenses. In addition, the Dodd-Frank Act generally requires lenders or securitizers to retain an economic interest in the credit risk relating to loans the lender sells and other asset-backed securities that the securitizer issues if the loans have not complied with the ability to repay standards. The risk retention requirement generally will be 5%, but could be increased or decreased by regulation.

Corporate Governance.    The Dodd-Frank Act addresses many investor protection, corporate governance, and executive compensation matters that will affect most U.S. publicly traded companies. The Dodd-Frank Act

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(1) grants shareholders of U.S. publicly traded companies an advisory vote on executive compensation; (2) enhances independence requirements for Compensation Committee members; and (3) requires companies listed on national securities exchanges to adopt incentive-based compensation clawback policies for executive officers. Additionally, the Dodd-Frank Act requires federal regulators to issue regulations or guidelines to prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by providing excessive compensation or that may lead to material losses at certain financial institutions with $1 billion or more in assets. A proposed rule was published in the Federal Register on April 14, 2011; however, regulators have yet to issue final rules on the topic. Further, in June, 2010, the Federal Reserve, the OCC, the Office of Thrift Supervision, and the FDIC jointly issued comprehensive final guidance designed to ensure that incentive compensation policies do not undermine the safety and soundness of banking organizations by encouraging employees to take imprudent risks. This regulation significantly restricts the amount, form, and context in which we pay incentive compensation to our employees.

Deposit Insurance.    The Dodd-Frank Act permanently raises the standard maximum insurance amount to $250,000 and, through December 31, 2012, provides unlimited insurance coverage for noninterest-bearing demand transaction accounts. Amendments to the Federal Deposit Insurance Act (the “FDIA”) also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to the DIF will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. This may shift the burden of deposit insurance premiums toward those depository institutions that rely on funding sources other than U.S. deposits. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum designated reserve ratio (“DRR”) from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. In December of 2010, the FDIC adopted a final rule setting the DRR at 2.0 percent. Furthermore, on February 7, 2011, the FDIC issued a final rule changing its assessment system from one based on domestic deposits to one based on the average consolidated total assets of a bank minus its average tangible equity during each quarter. The February 7, 2011 final rule modifies two adjustments added to the risk-based pricing system in 2009 (an unsecured debt adjustment and a brokered deposit adjustment), discontinues a third adjustment added in 2009 (the secured liability adjustment), and adds an adjustment for long-term debt held by an insured depository institution where the debt is issued by another insured depository institution. Additionally, effective July 21, 2011, the Dodd-Frank Act repealed the prohibition on the payment of interest on demand deposits.

Capital Standards.    Regulatory capital standards are expected to change as a result of the Dodd-Frank Act, and in particular as a result of the Collins Amendment. The Collins Amendment requires that the appropriate federal banking agencies establish minimum leverage and risk-based capital requirements on a consolidated basis for insured depository institutions and their holding companies. As a result, we and Seacoast National will be subject to the same capital requirements, and must include the same components in regulatory capital. One impact of the Collins Amendment is to prohibit bank and bank holding companies from including in their Tier 1 regulatory capital certain hybrid debt and equity securities issued on or after May 19, 2010 after a three-year phase-in period that begins January 1, 2013. Among the hybrid debt and equity securities included in this prohibition are trust preferred securities, which we have used in the past as a tool for raising additional Tier 1 capital and otherwise improving our regulatory capital ratios. However, the Collins Amendment does not apply to our trust preferred securities issued before May 19, 2010.

Shareholder Say-On-Pay Votes.    The Dodd-Frank Act requires public companies to take shareholders’ votes on proposals addressing compensation (known as say-on-pay), the frequency of a say-on-pay vote, and the golden parachutes available to executives in connection with change-in-control transactions. Public companies must give shareholders the opportunity to vote on the compensation at least every three years and the opportunity to vote on frequency at least every six years, indicating whether the say-on-pay vote should be held annually, biennially, or triennially. The first say-on-pay and say-on-frequency votes occurred at our 2011 shareholders annual meeting. The say-on-pay, the say-on-parachute and the say-on-frequency votes are explicitly nonbinding and cannot override a decision of our board of directors.

Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the extent of the changes brought about by the Dodd-Frank Act and the significant discretion afforded to federal regulators to implement those

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changes, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to our investors.

FDIC Insurance Special Assessment

On November 12, 2009, the FDIC adopted a final rule that requires nearly all FDIC-insured depositor-institutions prepay the DIF assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. In addition, the FDIC voted to adopt a uniform three-basis point increase in assessment rates effective on January 1, 2011, which increase would be reflected in our prepaid assessments. As discussed above, the Dodd-Frank Act amended the statutory regime governing the DIF and the FDIC has issued implementing regulations that set the DRR at 2.0 percent and modify the rules for calculating the amount of an institution’s deposit insurance premiums.

Basel III

As a result of the Dodd-Frank Act’s Collins Amendment, we and Seacoast National will formally be subject to the same regulatory capital requirements. The current risk-based capital guidelines that apply to us are based upon the 1988 capital accord of the international Basel Committee on Banking Supervision, a committee of central banks and bank supervisors, as implemented by the U.S. federal banking agencies on an interagency basis. In 2008, the banking agencies collaboratively began to phase-in capital standards based on a second capital accord (“Basel II”) for large or “core” international banks (generally defined for U.S. purposes as having total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Basel II emphasizes internal assessment of credit, market and operational risk, as well as supervisory assessment and market discipline in determining minimum capital requirements.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement to a strengthened set of capital requirements for internationally active banking organizations in the United States and around the world (“Basel III”). The agreement is supported by the U.S. federal banking agencies and the final text of the Basel III rules was released by the Basel Committee on Banking Supervision on December 16, 2010. While the timing and scope of any U.S. implementation of Basel III remains uncertain, the following items provide a brief description of the relevant provisions of Basel III and their potential impact on our capital levels if applied to us.

New Minimum Capital Requirements.    Subject to implementation by the U.S. federal banking agencies, Basel III would be expected to have the following effects on the minimum capital levels of banking institutions to which it applies when fully phased in on January 1, 2019:

• Minimum Common Equity.    The minimum requirement for common equity, the highest form of loss absorbing capital, will be raised from the current 2.0% level, before the application of regulatory adjustments, to 4.5% after the application of stricter adjustments. This requirement will be phased in by January 1, 2015. As noted below, total common equity required will rise to 7.0% by January 1, 2019 (4.5% attributable to the minimum required common equity plus 2.5% attributable to the “capital conservation buffer”).

• Minimum Tier 1 Capital.    The minimum Tier 1 capital requirement, which includes common equity and other qualifying financial instruments based on stricter criteria, will increase from 4.0% to 6.0% also by January 1, 2015. Total Tier 1 capital will rise to 8.5% by January 1, 2019 (6.0% attributable to the minimum required Tier 1 capital ratio plus 2.5% attributable to the capital conservation buffer, as discussed below).

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• Minimum Total Capital.    The minimum Total Capital (Tier 1 and Tier 2 capital) requirement will increase to 8.0% (10.5% by January 1, 2019, including the capital conservation buffer).

Capital Conservation Buffer.    An initial capital conservation buffer of 0.625% above the regulatory minimum common equity requirement will begin in January 2016 and will gradually be increased to 2.5% by January 1, 2019. The buffer will be added to common equity, after the application of deductions. The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. It is expected that, while banks would be allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints that would be applied to earnings distributions.

Countercyclical Buffer.    Basel III expects regulators to require, as appropriate to national circumstances, a “countercyclical buffer” within a range of 0% to 2.5% of common equity or other fully loss absorbing capital. The purpose of the countercyclical buffer is to achieve the broader goal of protecting the banking sector from periods of excess aggregate credit growth. For any given country, it is expected that this buffer would only be applied when there is excess credit growth that is resulting in a perceived system-wide build up of risk. The countercyclical buffer, when in effect, would be introduced as an extension of the conservation buffer range.

Regulatory Deductions from Common Equity.    The regulatory adjustments (i.e., deductions and prudential filters), including minority interests in financial institutions, and deferred tax assets from timing differences, would be deducted in increasing percentages beginning January 1, 2014, and would be fully deducted from common equity by January 1, 2018. Certain instruments that no longer qualify as Tier 1 capital, such as trust preferred securities, also would be subject to phase-out over a 10-year period beginning January 1, 2013.

Non-Risk Based Leverage Ratios.    These capital requirements are supplemented by a non-risk-based leverage ratio that will serve as a backstop to the risk-based measures described above. In July 2010, the Governors and Heads of Supervision agreed to test a minimum Tier 1 leverage ratio of 3.0% during the parallel run period. Based on the results of the parallel run period, any final adjustments would be carried out in the first half of 2017 with a view to adopting the 3.0% leverage ratio on January 1, 2018, based on appropriate review and calibration.

Adoption.    Basel III was endorsed at the meeting of the G-20 nations in November 2010 and the final text of the Basel III rules was subsequently agreed to by the Basel Committee on Banking Supervision on December 16, 2010. The agreement calls for national jurisdictions to implement the new requirements beginning January 1, 2013. At that time, the U.S. federal banking agencies, including the OCC, will be expected to have implemented appropriate changes to incorporate the Basel III concepts into U.S. capital adequacy standards. While the Basel III changes as implemented in the United States will likely result in generally higher regulatory capital standards, it is difficult at this time to predict how any new standards will ultimately be applied to Seacoast National and us.

Bank Holding Company Regulation

As a bank holding company, we are subject to supervision and regulation by 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. Ongoing supervision is provided through regular examinations by the Federal Reserve and other means that allow the regulators to gauge management’s ability to identify, assess and control risk in all areas of operations in a safe and sound manner and to ensure compliance with laws and regulations. The Federal Reserve may also examine our non-bank subsidiaries.

Expansion and Activity Limitations.    Under the BHC Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5 percent of the voting shares of, any company engaged in the following activities:

• banking or managing or controlling banks;

• furnishing services to or performing services for our subsidiaries; and

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• any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking, including:

• factoring accounts receivable;

• making, acquiring, brokering or servicing loans and usual related activities;

• leasing personal or real property;

• operating a non-bank depository institution, such as a savings association;

• performing trust company functions;

• providing financial and investment advisory activities;

• conducting discount securities brokerage activities;

• underwriting and dealing in government obligations and money market instruments;

• providing specified management consulting and counseling activities;

• performing selected data processing services and support services;

• acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions;

• performing selected insurance underwriting activities;

• providing certain community development activities (such as making investments in projects designed primarily to promote community welfare); and

• issuing and selling money orders and similar consumer-type payment instruments.

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, 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 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 elect 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.

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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.

Support of Subsidiary Banks by Holding Companies.    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. Notably, the Dodd-Frank Act has codified the Federal Reserve’s “source of strength” doctrine; this statutory change became effective July 21, 2011. In addition, the Dodd-Frank Act’s new provisions authorize the Federal Reserve to require a company that directly or indirectly controls a bank to submit reports that are designed both to assess the ability of such company to comply with its “source of strength” obligations and to enforce the company’s compliance with these obligations. As of [            ], 2012, the Federal Reserve and other federal banking regulators have not yet issued rules implementing this requirement, which are scheduled to be issued by July 21, 2012. 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 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.

Capital Requirements

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 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 1.0% to 2.0%, if the institution has less than the highest regulatory rating. The guidelines also provide that institutions 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.

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The capital requirements applicable to us and Seacoast National are subject to change because, over the coming years, the regulatory capital framework is expected to change in important respects as a result of the Dodd-Frank Act and Basel III. In particular, as noted above, the Dodd-Frank Act eliminates Tier 1 capital treatment for most trust preferred securities after a three-year phase-in period that begins January 1, 2013. Moreover, reflecting the importance that regulators place on managing capital and other risks, on June 16, 2011, the banking agencies also issued proposed guidance on stress testing for banking organizations with more than $10 billion in total consolidated assets; this proposed guidance outlines four “high-level” principles for stress testing practices that should be a part of a banking organization’s stress-testing framework. The guidance calls for the framework to (i) include activities and exercises that are tailored to the activities of the organization; (ii) employ multiple conceptually sound activities and approaches; (iii) be forward-looking and flexible; and (iv) be clear, actionable, well-supported, and used in the decision-making process. In addition, the federal bank regulators have issued a series of guidance and rulemakings applicable to “large banks.” Many of these do not currently apply us due to our asset size; however, these issuances could impact industry capital standards and practices in many, potentially unforeseeable ways.

FDICIA and Prompt Corrective Action

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 regulatory 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. The FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions, depending on the category in which an institution is classified.

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) and does not meet the definition of a “well capitalized” bank, (iii) “undercapitalized” if it has a total risk-based capital ratio of less than 8% or a Tier 1 capital ratio of less than 4% or a leverage ratio that is 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. In order to qualify as well-capitalized or adequately capitalized, an insured depository institution must meet all three minimum requirements. At each successively lower capital tier, increasingly stringent corrective actions are or may be required. The federal bank regulatory agencies have authority to require additional capital.

As of December 31, 2011, the consolidated capital ratios of the Seacoast and Seacoast National were as follows:

	Regulatory Minimum			Seacoast (Consolidated)			Seacoast National
Tier 1 capital ratio		4.0	%		17.51	%		16.63	%
Total risk-based capital ratio		8.0	%		18.77	%		17.89	%
Leverage ratio		3.0-5.0	%		10.31	%		9.79	%

We have agreed with the OCC to maintain a Tier 1 leverage capital ratio of at least 8.50 percent and a total risk-based capital ratio of at least 12.00 percent.

As previously noted, the regulatory capital framework will change in important respects as a result of the Dodd-Frank Act and Basel III. It is widely anticipated that the capital requirements for most insured depository institutions will increase, although the nature and amounts of the increase have not yet been specified.

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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.

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 within 90 days of becoming undercapitalized. 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. In addition, an undercapitalized institution is subject to increased monitoring and asset growth restrictions and is required to obtain prior regulator approval for acquisitions, new lines of business, and branching. Such an institution also is barred from soliciting, taking or rolling over brokered deposits.

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 within 90 days of becoming significantly undercapitalized, except under limited circumstances. 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, 2011, and brokered deposits are not restricted.

Payment 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 and to prohibit payment thereof. The OCC and the Federal Reserve have indicated that paying dividends that deplete a national

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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.

Under a Federal Reserve policy adopted in 2009, the board of directors of a bank holding company must consider different factors to ensure that its dividend level is prudent relative to maintaining a strong financial position, and is not based on overly optimistic earnings scenarios, such as potential events that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should consult with the Federal Reserve and eliminate, defer or significantly reduce the bank holding company’s dividends if:

• its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;

• its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or

• it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

Although Seacoast National recorded net income in 2011, it did not pay any dividends to us. In 2009 and 2010, Seacoast National recorded a net loss and did not pay any dividends.

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, 2011.

In addition to these regulatory requirements and restrictions, our ability to pay dividends is also limited by our participation in the Treasury’s CPP, as described below. Prior to December 19, 2011, unless we redeemed the preferred stock issued to the Treasury in the CPP or the Treasury transferred the preferred stock to a third party, we could not increase our quarterly dividend above $0.01 per share of common stock. Furthermore, if we are not current in the payment of quarterly dividends on the Series A Preferred Stock, we cannot pay dividends on our common stock. During the third quarter of 2011, the Federal Reserve lifted its restriction regarding our paying dividends on the Series A Preferred Stock. As a result, on August 15, 2011 we paid the dividend due and nine deferred dividends (plus accrued interest) to the Treasury. Dividend payments on the Series A Preferred Stock are current at December 31, 2011. No dividends on our common stock have been declared or paid.

Enforcement Policies and Actions; Formal Agreement with OCC

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 other parties 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 appointed a compliance committee to monitor and coordinate Seacoast National’s performance. The formal agreement provided 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. Seacoast National believes it has complied with all of the terms of this agreement.

The OCC and Seacoast National 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 12.00 percent and a Tier 1 leverage ratio of 7.50 percent. The agreed upon minimum capital ratios with the OCC were revised under the letter agreement to 12.00 percent for the total risk based capital ratio and 8.50 percent for the Tier l leverage ratio at January 31, 2010 and for subsequent periods. The federal bank regulatory agencies

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have begun seeking higher capital levels than the minimums due to market conditions and the OCC had 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.

Bank and Bank Subsidiary Regulation

Seacoast National is a national bank subject to supervision, regulation and examination by 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”.

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, was registered as a securities broker-dealer under the Exchange Act and is regulated by the Securities and Exchange Commission (the “Commission” or SEC). FNB Brokerage was dissolved at the end of December 2011. During 2011, employees of FNB Brokerage became dual employees of Seacoast National and Invest Financial Corporation, through which Seacoast National presently conducts its brokerage and annuity services. Prior to this change, FNB Brokerage was subject to examination and supervision of its operations, personnel and accounts by the Financial Industry Regulatory Authority, Inc. (“FINRA”). Also, FNB Brokerage was a separate and distinct entity from Seacoast National, and maintained adequate capital under the SEC’s net capital rule. The net capital rule limited FNB Brokerage’s ability to reduce capital by payment of dividends or other distributions to Seacoast National. FNB Brokerage was 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.

Standards for Safety and Soundness

The Federal Deposit Insurance Act requires the federal bank regulatory agencies to prescribe, by regulation or guideline, operational and managerial standards for all insured depository institutions relating to: (1) internal controls; (2) information systems and audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate risk exposure; and (6) asset quality.

The agencies also must prescribe standards for asset quality, earnings, and stock valuation, as well as standards for compensation, fees and benefits. The federal banking agencies have adopted regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if a regulator determines that a

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bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans.

FDIC Insurance Assessments

Seacoast National’s deposits are insured by the FDIC’s 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.

The FDIC issued a final rule effective April 1, 2009 that changed the way that the FDIC’s assessment system differentiates for risk, made corresponding changes to assessment rates beginning with the second quarter of 2009, and made other changes to the deposit insurance assessment rules. These rules included a 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) an increase for secured liabilities above a threshold amount; and (3) an increase for brokered deposits above a threshold amount. These assessment rules increased assessments for banks that use brokered deposits above a threshold level to fund “rapid asset growth”. As a result, we were required to pay significantly increased premiums or additional special assessments.

In 2009, we paid $5.0 million in FDIC insurance premiums, including $976,000 for a special industry-wide FDIC deposit insurance assessment of five basis points of an institution’s assets minus Tier 1 capital as of June 30, 2009. In addition, to restore the FDIC’s Deposit Insurance Fund, all FDIC-insured institutions were required to prepay their deposit premiums for the next 3 years on December 30, 2009. The FDIC ruling also provided for maintaining the assessment rates at their current levels through the end of 2010, with a uniform increase of $0.03 per $100 of covered deposits effective January 1, 2011. On December 30, 2009, we prepaid $14.8 million of FDIC insurance premiums for the calendar quarters ending December 31, 2009 through December 31, 2012. In 2010, we recorded $3.8 million to expense in FDIC insurance premiums.

Effective April 1, 2011, and as discussed above (see Recent Regulatory Developments), the FDIC began calculating assessments based on an institution’s average consolidated total assets less its average tangible equity in accordance with changes mandated by the Dodd-Frank Act. Changes to assessment rates were developed to approximate the same inflow of premiums to the FDIC, but with a shifting of the burden of deposit insurance premiums toward those depository institutions that rely on funding sources other than U.S. deposits. Initial base assessment rates applicable to second quarter 2011 assessments (and prospectively until the DIF reserve ratio reaches 1.15 percent) were as follows:

Risk Category	Deposit Insurance Assessment Rate
I	5 to 9 basis points
II	14 basis points
III	23 basis points
IV	35 basis points

An institution’s overall rate may be higher by as much as 10 basis points or lower by as much as 5 basis points depending on adjustments to the base rate for unsecured debt and/or brokered deposits. Furthermore, under the new system, different rate schedules will take effect when the DIF reserve ratio reaches certain levels. For example, for banks in risk category II, the initial base assessment rate will be 14 basis points when the DIF reserve ratio is below 1.15 percent, 12 basis points when the DIF reserve ratio is between 1.15 percent and 2 percent, 10 basis points when the DIF reserve ratio is between 2 percent and 2.5 percent and 9 basis points when the DIF reserve ratio is 2.5 percent or higher.

Since inception of the new schedule, Seacoast National’s overall rate for assessment calculations has been 14 basis points, the base rate for Risk Category II. For Seacoast National, the new methodology has had a favorable effect, with premiums totaling $2.9 million for 2011, comprised of amounts paid for the first quarter of 2011 (under the old basis), and amounts paid for the second, third and fourth quarters of 2011, respectively (under the new basis).

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In addition, all FDIC-insured institutions are required to pay a pro rata portion of the interest due on bonds issued by the Financing Corporation (“FICO”). FICO assessments are set by the FDIC quarterly and ranged from 1.14 basis points in the first quarter of 2009 to 1.02 basis points in the last quarter of 2009, 1.06 basis points in the first quarter of 2010 to 1.04 basis points in the last quarter of 2010, and 1.02 basis points in the first quarter of 2011 to 0.68 basis points in the last quarter of 2011. The FICO assessment rate for the first quarter of 2012 is 0.66 basis points. FICO assessments of approximately $192,000, $184,000 and $146,000 were paid to the FDIC in 2009, 2010 and 2011, respectively.

Participation in Treasury’s Capital Purchase Program

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) became law. Under the TARP authorized by the EESA, the Treasury established the 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 letter agreement (the “Purchase Agreement”), we sold 2,000 shares of Series A Preferred Stock (the “Series A Preferred Stock”) and a warrant (the “Warrant”) to acquire 1,179,245 shares of common stock to the Treasury pursuant to the CPP for an aggregate consideration of $50 million. Pursuant to the terms of the Warrant, the successful public capital raise conducted by the Company during 2009 reduced the number of shares under the Warrant by 50 percent to 589,623 shares of common stock. 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 dividend payments on the Series A Preferred Stock. Further, prior to December 19, 2011, without the Treasury’s approval, we were not permitted to (i) increase dividends on our common stock above $0.01 per share, redeem, purchase or acquire any shares of our common stock, other equity securities or trust preferred securities, subject to certain exceptions, unless all of the Series A Preferred Stock had been redeemed or transferred by the Treasury to non-affiliated third parties. Further, our common, junior preferred or pari passu preferred shares may not be repurchased if we are in arrears on the Series A Preferred Stock dividend payments. 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) the Treasury will have the right to elect two directors to our board of directors until all accrued but unpaid dividends have been paid; otherwise, except as required by law, holders of the Series A Preferred Stock have limited voting rights. We currently have paid all dividends due on the Series A Preferred Stock.

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 President Obama signed into law The American Recovery and Reinvestment Act of 2009 (the “ARRA”), commonly known as the economic stimulus or economic recovery package. The ARRA retroactively imposed certain new executive compensation and corporate expenditure limits and corporate governance standards on all current and future TARP recipients, including us, that are in addition to those previously announced by the Treasury, until the institution has repaid the Treasury. The Treasury released an interim final rule on TARP standards for compensation and corporate governance on June 15, 2009, which implemented and further expanded the limitations and restrictions imposed on executive compensation and

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corporate governance by the TARP CPP and ARRA. The Treasury interim final rules also prohibit any tax gross-up payments to senior executive officers and the next 20 highest paid executives; require “say on pay” vote in annual shareholders’ meeting; and impose restrictions on bonus payments with the exceptions for long-term restricted stock.

In addition, we are also required to include certificates from our management in our annual report on Form 10-K regarding our compliance with all regulations summarized above as a result of our participation in the TARP CPP.

Repayment of the outstanding Series A Preferred Stock and the Warrant is now permitted under the ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with our appropriate regulatory agency, the prior approval of the Federal Reserve and the maintenance of appropriate levels of capital by us and our subsidiaries.

Change in Control

Subject to certain exceptions, the BHC Act and the Change in Bank Control Act, together with regulations promulgated thereunder, require Federal Reserve approval prior to any person or company acquiring “control” of a bank or bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25 percent or more of any class of voting securities, and rebuttably presumed to exist if a person acquires 10 percent or more, but less than 25 percent, of any class of voting securities and either the company has registered securities under Section 12 of the Exchange Act or no other person owns a greater percentage of that class of voting securities immediately after the transaction. In certain cases, a company may also be presumed to have control under the Bank Holding Company Act if it acquires 5 percent or more of any class of voting securities.

On September 22, 2008, the Federal Reserve issued a policy statement on minority equity investments in banks and bank holding companies, that permits investors to (1) acquire up to 33 percent of the total equity of a target bank or bank holding company, subject to certain conditions, including (but not limited to) that the investing firm does not acquire 15 percent or more of any class of voting securities, and (2) designate at least one director, without triggering the various regulatory requirements associated with control.

Other Regulations

Anti-Money Laundering.    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. 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.

The USA PATRIOT Act requires financial institutions to establish anti-money laundering programs with minimum standards that include:

• 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.

Economic Sanctions.    The Office of Foreign Assets Control (“OFAC”) is responsible for helping to insure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and acts of congress. OFAC publishes, and routinely updates, lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, including the Specially Designated Nationals and

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Blocked Persons List. If we find a name on any transaction, account or wire transfer that is on an OFAC list, we must undertake certain specified activities, which could include blocking or freezing the account or transaction requested, and we must notify the appropriate authorities.

Transactions with Related Parties.    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 Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Specifically, Section 608 of the Dodd-Frank Act broadens the definition of “covered transactions” to include derivative transactions and the borrowing or lending of securities if the transaction will cause a bank to have credit exposure to an affiliate. The revised definition also includes the acceptance of debt obligations of an affiliate as collateral for a loan or extension of credit to a third party. Furthermore, reverse repurchase transactions will be viewed as extensions of credit (instead of asset purchases) and thus become subject to collateral requirements. These expanded definitions take effect on July 21, 2012. The ability of the Federal Reserve to grant exemptions from these restrictions is also narrowed by the Dodd-Frank Act, including with respect to the requirement for the OCC, FDIC and Federal Reserve to coordinate with one another.

Concentrations in Lending.    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 percent 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 Real Estate Investment Trusts (“REIT”) 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 percent 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 percent 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.

The Guidance applies to our CRE lending activities due to the concentration in construction and land development loans. At December 31, 2011, we had outstanding $22.6 million in commercial construction and

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residential land development loans and $26.6 in residential construction loans to individuals, which represents approximately 22 percent of Seacoast National’s total risk based capital at December 31, 2011, well below the Guidance’s threshold.

On October 30, 2009, the banking regulators issued a policy statement on “Prudent Commercial Real Estate Loan Workouts” (the “Policy Statement”), which replaced a previous policy statement issued by regulators in 1995. The regulators issued the Policy Statement in recognition of the difficulties that financial institutions may face when working with commercial real estate borrowers that are experiencing reduced operating cash flows, depreciated collateral values, or prolonged sales and rental absorption periods. Among other things, the Policy Statement identifies supervisory expectations for a bank’s risk management elements for loan workout programs, loan workout arrangements, classification of loans, and regulatory reporting and accounting considerations.

We have always had significant exposures to loans secured by commercial real estate due to the nature of our 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. At December 31, 2011, total CRE exposure for Seacoast National had been significantly reduced to 174 percent of total risk based capital, below the Guidance’s threshold. See “Item 1. Business — Enforcement Policies and Actions.”

Furthermore, the Dodd-Frank Act contains provisions that may impact our business by reducing the amount of our commercial real estate lending and increasing the cost of borrowing, including rules relating to risk retention of securitized assets. Section 941 of the Dodd-Frank Act requires, among other things, a loan originator or a securitizer of asset-backed securities to retain a percentage of the credit risk of securitized assets. Federal regulators have jointly issued a proposed rule to implement these requirements but have yet to issue final rules.

Community Reinvestment Act.    We and our banking subsidiaries are subject to the provisions of the Community Reinvestment Act (“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 other things, that evidence of discrimination against applicants on a prohibited basis, and illegal or abusive lending practices be considered in the CRA evaluation.

Privacy and Data Security.    The GLB Act imposed new requirements on financial institutions with respect to consumer privacy. The GLB Act generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further required to disclose their privacy policies to consumers annually. Financial institutions, however, will be required to comply with state law if it is more protective of consumer privacy than

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the GLB Act. The GLB Act also directed federal regulators, including the FDIC and the OCC, to prescribe standards for the security of consumer information. Seacoast National is subject to such standards, as well as standards for notifying customers in the event of a security breach. Under federal law, Seacoast National must disclose its privacy policy to consumers, permit customers to opt out of having nonpublic customer information disclosed to third parties in certain circumstances, and allow customers to opt out of receiving marketing solicitations based on information about the customer received from another subsidiary. States may adopt more extensive privacy protections. The Company is similarly required to have an information security program to safeguard the confidentiality and security of customer information and to ensure proper disposal. Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused.

Consumer Regulation.    Activities of Seacoast National are subject to a variety of statutes and regulations designed to protect consumers. These laws and regulations include provisions that:

• limit the interest and other charges collected or contracted for by Seacoast National, including new rules respecting the terms of credit cards and of debit card overdrafts;

• govern Seacoast National’s disclosures of credit terms to consumer borrowers;

• require Seacoast National to provide information to enable the public and public officials to determine whether it is fulfilling its obligation to help meet the housing needs of the community it serves;

• prohibit Seacoast National from discriminating on the basis of race, creed or other prohibited factors when it makes decisions to extend credit; and

• govern the manner in which Seacoast National may collect consumer debts.

New rules on credit card interest rates, fees, and other terms took effect on February 22, 2010, as directed by the Credit Card Accountability, Responsibility and Disclosure (“CARD”) Act. Among the new requirements are (1) 45-days advance notice to a cardholder before the interest rate on a card may be increased, subject to certain exceptions; (2) a ban on interest rate increases in the first year; (3) an opt-in for over-the-limit charges; (4) caps on high fee cards; (5) greater limits on the issuance of cards to persons below the age of 21; (6) new rules on monthly statements and payment due dates and the crediting of payments; and (7) the application of new rates only to new charges and of payments to higher rate charges.

New rules regarding overdraft charges for debit card and automatic teller machine, or ATM, transactions took effect on July 1, 2010. These rules eliminated automatic overdraft protection arrangements now in common use and required banks to notify and obtain the consent of customers before enrolling them in an overdraft protection plan. For existing debit card and ATM card holders, the current automatic programs expired on August 15, 2010. The notice and consent process is a requirement for all new cards issued on or after July 1, 2010. The new rules do not apply to overdraft protection on checks or to automatic bill payments. In June 2011, pursuant to requirements of the Dodd-Frank Act, the Federal Reserve issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. The Federal Reserve has also proposed revisions to Regulation E, which governs electronic transactions, to implement certain Dodd-Frank requirements relating to remittance transfer transactions.

As a result of the turmoil in the residential real estate and mortgage lending markets, there are several concepts currently under discussion at both the federal and state government levels that could, if adopted, alter the terms of existing mortgage loans, impose restrictions on future mortgage loan originations, diminish lenders’ rights against delinquent borrowers or otherwise change the ways in which lenders make and administer residential mortgage loans. If made final, any or all of these proposals could have a negative effect on the financial performance of Seacoast National’s mortgage lending operations, by, among other things, reducing the volume of mortgage loans that Seacoast National can originate and sell into the secondary market and impairing Seacoast National’s ability to proceed against certain delinquent borrowers with timely and effective collection efforts.

The deposit operations of Seacoast National are also subject to laws and regulations that:

• require Seacoast National to adequately disclose the interest rates and other terms of consumer deposit accounts;

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• impose a duty on Seacoast National to maintain the confidentiality of consumer financial records and prescribe procedures for complying with administrative subpoenas of financial records;

• require escheatment of unclaimed funds to the appropriate state agencies after the passage of certain statutory time frames; and

• govern automatic deposits to and withdrawals from deposit accounts with Seacoast National and the rights and liabilities of customers who use automated teller machines, or ATMs, and other electronic banking services. As described above, beginning in July 2010, new rules took effect that limited Seacoast National’s ability to charge fees for the payment of overdrafts for every day debit and ATM card transactions.

As noted above, Seacoasts National will likely face a significant increase in its consumer compliance regulatory burden as a result of the combination of the newly-established CFPB and the significant roll back of federal preemption of state laws in the area. Furthermore, many of the consumer protection laws and regulations are subject to change resulting from the provisions in the Dodd-Frank Act and other developments, which in many cases call for revisions to implementing regulations. In addition, the responsibility for oversight of many consumer protection laws and regulations has, in large measure, transferred from the bank’s primary regulator to the CFPB. To this end, the CFPB is in the process of republishing the transferred regulations in a new section of the Code of Federal Regulations but has not yet made substantive changes to these rules. It is anticipated that the CFPB will be making substantive changes to a number of consumer protection regulations and associated disclosures in the near term.

Non-Discrimination Policies.    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.

Enforcement Authority.    Seacoast National and its “institution-affiliated parties,” including management, employees, agents, independent contractors and consultants, such as attorneys and accountants and others who participate in the conduct of the institution’s affairs, are subject to potential civil and criminal penalties for violations of law, regulations or written orders of a government agency. Violations can include failure to timely file required reports, filing false or misleading information or submitting inaccurate reports. Civil penalties may be as high as $1,000,000 a day for such violations, and criminal penalties for some financial institution crimes may include imprisonment for 20 years. Regulators have flexibility to commence enforcement actions against institutions and institution-affiliated parties, and the FDIC has the authority to terminate deposit insurance. When issued by a banking agency, cease-and-desist orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions determined to be appropriate by the ordering agency. The federal banking agencies also may remove a director or officer from an insured depository institution (or bar them from the industry) if a violation is willful or reckless.

Governmental Monetary Policies.    The commercial banking business is affected not only by general economic conditions but also by the monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowings, control of borrowings, open market operations, the imposition of and changes in reserve requirements against member banks, deposits and assets of foreign branches, the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates and the placing of limits on interest rates which member banks may pay on time and savings deposits are some of the instruments of monetary policy available to the Federal Reserve. These monetary policies influence to a significant extent the overall growth of all bank loans, investments and deposits and the interest rates charged on loans or paid on time and savings deposits. Recently, in response to the financial crisis, the Federal Reserve has established several

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innovative programs to stabilize certain financial institutions and to ensure the availability of credit. The nature of future monetary policies and the effect of such policies on the bank’s future business and earnings, therefore, cannot be predicted accurately.

Evolving Legislation and Regulatory Action.    Proposals for new statutes and regulations are frequently circulated at both the federal and state levels, and may include wide-ranging changes to the structures, regulations and competitive relationships of financial institutions. We cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any regulations, would have on our business, financial condition or results of operations.

Other Regulatory Matters.    We and our subsidiaries are subject to oversight by the SEC, FINRA, the Public Company Accounting Oversight Board and Nasdaq and various state securities regulators. We and our subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state attorneys general, securities regulators and other regulatory authorities, concerning our business practices. Such requests are considered incidental to the normal conduct of business.

Statistical Information

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

In addition to the other information contained in this Form 10-K, you should carefully consider the risks described below, as well as the risk factors and uncertainties discussed in our other public filings with the SEC under the caption “Risk Factors” in evaluating us and our business and making or continuing an investment in our stock. The risks contained in this Form 10-K are not the only risks that we face. Additional risks that are not presently known, or that we presently deem to be immaterial, could also harm our business, results of operations and financial condition and an investment in our stock. The trading price of our securities could decline due to the materialization of any of these risks, and our shareholders may lose all or part of their investment. This Form 10-K also contains forward-looking statements that may not be realized as a result of certain factors, including, but not limited to, the risks described herein and in our other public filings with the SEC. Please refer to the section in this Form 10-K entitled “Special Cautionary Notice Regarding Forward-Looking Statements” for additional information regarding forward-looking statements.

Risks Related to Our Business

Difficult market conditions have adversely affected and may continue to affect our industry.

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 several years, 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 and 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. 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 recent regulatory reform initiatives by the U.S. government. Compliance with such regulations may increase our costs and limit our ability to pursue business opportunities.

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• Market developments, government programs and the winding down of various 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, deterioration in investor expectations and changes in the FDIC’s resolution authority or practices.

• 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.

While we resumed paying dividends on our preferred stock and distributions on our trust preferred securities, we continue to be restricted in otherwise paying cash dividends on our common stock. If we fail to continue to pay dividends on our preferred stock and trust preferred securities, we may be adversely affected.

We suspended dividend payments on our preferred and common stock and distributions on our trust preferred securities on May 19, 2009, as required by Federal Reserve policies governing dividends and distribution and in response to our operating losses at that time. On August 15, 2011, after conferring with the Federal Reserve, the Company’s board of directors approved the resumption of cash dividends on our Series A Preferred Stock and distributions on our trust preferred securities. During the third quarter of 2011, we paid all previously deferred dividends and distributions on our Series A Preferred Stock and trust preferred securities, as well as the regularly scheduled payments. Although we resumed paying dividends on our Series A Preferred Stock and distributions on our trust preferred securities, there is no assurance that we will continue to receive approval to pay cash dividends on such securities in the future.

Dividend payments on our Series A Preferred Stock and distributions on our trust preferred securities are cumulative and therefore unpaid dividends and distributions were accrued and compounded prior to our payment during the third quarter of 2011. If we fail to make payments in the future, such future payments will also accrue and compound. In the event of any liquidation, dissolution or winding up of the affairs of our Company, holders of the Series A Preferred Stock shall be entitled to receive for each share of Series A Preferred Stock the liquidation amount plus the amount of any accrued and unpaid dividends.

Under the terms of the Purchase Agreement for the Series A Preferred Stock, prior to December 19, 2011 we needed Treasury approval to increase our quarterly cash dividends above $0.01 per common share, unless certain other requirements were met. Even though this restriction has been lifted, any potential dividends paid on our common stock would be declared and paid at the discretion of our board of directors and would be dependent upon our liquidity, financial condition, results of operations, capital requirements and such other factors as our board of directors may deem relevant. Additionally, if we fail to make any dividend payments on the Series A Preferred Stock in the future, we would be unable to declare dividends on our common, junior preferred or pari passu preferred shares as long as the dividend payments on the Series A Preferred Stock are in arrears.

If we fail to maintain timely dividend payments on our Series A Preferred Stock, the Treasury may again have the right to elect two directors to the Company’s board of directors.

Under the terms of our Series A Preferred Stock, if we fail to make quarterly dividend payments for an aggregate of six quarterly periods or more (whether or not consecutive), the Treasury has the right to elect two directors to our board of directors until all accrued but unpaid dividends have been paid. Dividends on our Series

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A Preferred Stock were current at December 31, 2011. However, if the Company again fails to make timely dividend payments for six quarterly periods, the Treasury may elect to exercise its right, and as a result, we could face negative publicity and the composition and decision making authority of our board of directors could be significantly impacted.

Nonperforming assets could result in an increase in our provision for loan losses, which could adversely affect our results of operations and financial condition.

At December 31, 2011 and 2010, our nonperforming loans (which consist of nonaccrual loans) totaled $28.5 million and $68.3 million, or 2.4 percent and 5.5 percent of the loan portfolio, respectively. At December 31, 2011 and 2010, our nonperforming assets (which include foreclosed real estate) were $49.5 million and $94.0 million, or 2.3 percent and 4.7 percent of assets, respectively. In addition, we had approximately $5.0 million in accruing loans that were 30 days or more delinquent at both December 31, 2011 and 2010, respectively. Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our income, and increasing our loan administration costs. When we take collateral in foreclosures and similar proceedings, we are required to mark the related loan to the then fair market value of the collateral, which may result in a loss. These loans and other real estate owned also increase our risk profile and the capital our regulators believe is appropriate in light of such risks. Until economic and market conditions improve, we may incur additional losses relating to an increase in nonperforming loans. If economic conditions and market factors negatively and/or disproportionately affect some of our larger loans, then we could see a sharp increase in our total net charge-offs and also be required to significantly increase our allowance for loan losses. Any further increase in our nonperforming assets and related increases in our provision for losses on loans could negatively affect our business and could have a material adverse effect on our capital, financial condition and results of operations.

Seacoast National has adopted and implemented a written program to ensure Bank adherence to a written program designed to eliminate the basis of criticism of criticized assets as required by the OCC pursuant to the formal agreement that Seacoast National entered into with the OCC. While we have reduced our problem assets significantly through loan sales, workouts, restructurings and otherwise, decreases in the value of these remaining assets, or the underlying collateral, or in these 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, or that nonperforming assets will not result in further losses in the future.

Our allowance for loan losses may prove inadequate or we may be adversely 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. The determination of the appropriate level of the allowance for loan losses involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. 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. The credit quality of our borrowers has deteriorated as a result of the economic downturn in our markets. If the credit quality of our customer base or their debt service behavior materially decreases further, if the risk profile of a market, industry or group of customers declines further 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. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require

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an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance for loan losses, which would result in a decrease in net income and capital, and could have a material adverse effect on our financial condition and results of operations.

Our ability to realize our deferred tax assets may be further reduced in the future if our estimates of future taxable income from our operations and tax planning strategies do not support our deferred tax amount, and the amount of net operating loss carry-forwards and certain other tax attributes realizable for income tax purposes may be reduced under Section 382 of the Internal Revenue Code by sales of our capital securities.

As of December 31, 2011, we had deferred tax assets of $16.8 million after we recorded $44.9 million of valuation allowance based on management’s estimation of the likelihood of those deferred tax assets being realized. These and future deferred tax assets may be further reduced in the future if our estimates of future taxable income from our operations and tax planning strategies do not support the amount of the deferred tax asset.

As a result of the losses incurred in 2009, 2010, and 2011, the Company was and is in a three-year cumulative pretax loss position. A cumulative loss position is considered significant negative evidence in assessing the prospective realization of a deferred tax asset from a forecast of future taxable income. We also considered all positive and negative evidence including the impact of recent operating results, reversal of existing taxable temporary differences, tax planning strategies and projected earnings with the statutory tax loss carryover period. This process required significant judgment by management about matters that are by nature uncertain. If we were to conclude that significant portions of our deferred tax assets were not more likely than not to be realized (due to operating results or other factors), the required valuation allowance could adversely affect our financial position and results of operation thereby negatively affecting our stock price.

The amount of net operating loss carry-forwards and certain other tax attributes realizable annually for income tax purposes may be reduced by an offering and/or other sales of our capital securities, including transactions in the open market by 5% or greater shareholders, if an ownership change is deemed to occur under Section 382 of the Internal Revenue Code (“Section 382”). The determination of whether an ownership change has occurred under Section 382 is highly fact specific and can occur through one or more acquisitions of capital stock (including open market trading) if the result of such acquisitions is that the percentage of our outstanding common stock held by shareholders or groups of shareholders owning at least 5% of our common stock at the time of such acquisition, as determined under Section 382, is more than 50 percentage points higher than the lowest percentage of our outstanding common stock owned by such shareholders or groups of shareholders within the prior three-year period. Our sales of common stock in April 2010 increased the risk of a possible future change in control under Section 382. As discussed further below, we have adopted an amendment to our Amended and Restated Articles of Incorporation that is intended to help preserve our net operating losses, however, such amendment may not be effective.

The protective amendment contained in our articles of incorporation, which is intended to help preserve our net operating losses, may not be effective or may have unintended negative effects.

On May 27, 2011, we filed with the Florida Secretary of State Articles of Amendment to our Amended and Restated Articles of Incorporation adding a new Section 4.06 to Article IV thereto (the “Protective Amendment”) which is intended to help preserve certain tax benefits primarily associated with our net operating losses (“NOLs”).

Subject to certain exceptions pertaining to existing 5% or greater shareholders, the Protective Amendment generally will restrict any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to:

• increase the direct or indirect ownership of our stock by any person (or any “public group” of shareholders, as that term is defined under Section 382) from less than 5% to 5% or more of our common stock;

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• increase the percentage of our common stock owned directly or indirectly by a person (or public group) owning or deemed to own 5% or more of our common stock; or

• create a new public group.

Under the Protective Amendment, any direct or indirect transfer attempted in violation of the Protective Amendment is void ab initio as of the date of the prohibited transfer as to the purported transferee (or, in the case of an indirect transfer, the ownership of the direct owner of our common stock would terminate effective simultaneously with the transfer), and the purported transferee (or in the case of any indirect transfer, the direct owner) would not be recognized as the owner of the shares owned in violation of the Protective Amendment for any purpose, including for purposes of voting and receiving dividends or other distributions in respect of such common stock, or in the case of options or warrants, receiving our common stock in respect of their exercise. Prohibited transfers are also subject to other restrictions, as set forth in the articles of amendment.

Although the Protective Amendment is intended to reduce the likelihood of an “ownership change” under Section 382, which could reduce certain tax benefits associated with our NOLs, we cannot eliminate the possibility that an “ownership change” will occur even if the Protective Amendment is adopted since:

• The Board of Directors can permit a transfer to an acquirer that results or contributes to an “ownership change” if it determines that such transfer is in the Company’s and our shareholders’ best interests.

• Under the Florida Business Corporation Act, the articles of incorporation of a corporation may impose restrictions on the transfer of shares of the corporation. However, a restriction does not affect shares issued before the restriction was adopted unless the holders of such shares are parties to the restriction agreement or voted in favor of the restriction. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by Section 607.0627 of the Florida Business Corporation Act and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by Section 607.0626(2) of the Florida Business Corporation Act. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction. We intend to cause shares of our common stock issued after the effectiveness of the Protective Amendment to be issued with the relevant transfer restriction conspicuously noted on the certificate(s) representing such shares and therefore under Florida law such newly issued shares will be subject to the transfer restriction. We also intend to disclose such restrictions to persons holding our common stock in uncertificated form. For the purpose of determining whether a shareholder is subject to the Protective Amendment, we intend to take the position that all shares issued prior to the effectiveness of the Protective Amendment that are proposed to be transferred were voted in favor of the Protective Amendment, unless the contrary is established. We may also assert that shareholders have waived the right to challenge or otherwise cannot challenge the enforceability of the Protective Amendment, unless a shareholder establishes that it did not vote in favor of the Protective Amendment. Nonetheless, a court could find that the Protective Amendment is unenforceable, either in general or as applied to a particular shareholder or fact situation.

• Despite the adoption of the Protective Amendment, there is still a risk that certain changes in relationships among shareholders or other events could cause an “ownership change” under Section 382. We cannot assure you that the Protective Amendment is effective or enforceable in all circumstances, particularly against shareholders who did not vote in favor of the proposal or who did not have notice of the acquisition restrictions at the time they subsequently acquire their shares. Accordingly, we cannot assure you that an “ownership change” will not occur even with the Protective Amendment.

As a result of these and other factors, the Protective Amendment serves to reduce, but does not eliminate, the risk that we will undergo an “ownership change.”

The Protective Amendment also requires any person attempting to become a holder of 5% or more of our common stock, as determined under Section 382, to seek the approval of our Board of Directors. This may have an unintended “anti-takeover” effect because our Board of Directors may be able to prevent any future takeover. Similarly, any limits on the amount of stock that a shareholder may own could have the effect of making it more difficult for shareholders to replace current management. Additionally, because the Protective Amendment may

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have the effect of restricting a shareholder’s ability to dispose of or acquire our common stock, the liquidity and market value of our common stock might suffer.

The Protective Amendment will expire on the earliest of:

• the Board of Director’s determination that the Protective Amendment is no longer necessary for the preservation of our NOLs because of the amendment or repeal of Section 382 or any successor statute;

• the beginning of a taxable year to which the Board of Directors determines that none of our NOLs may be carried forward;

• such date as the Board of Directors otherwise determines that the Protective Amendment is no longer necessary for the preservation of tax benefits associated with our NOLs; or

• three years from its adoption, unless reapproved by shareholders.

Current and further deterioration 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 correction in residential real estate market prices and reduced levels of home sales, could result in further price reductions in single family home values, further adversely affecting 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 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. 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.

Florida has experienced a deeper recession and more dramatic slowdown in economic activity than other states and the decline in real estate values in Florida has been significantly higher than the national average. The declines in home prices and the volume of home sales in Florida, 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 the continued economic recession in our markets and continued high or increased unemployment levels could cause additional losses which could adversely affect our earnings and financial condition, including our capital and liquidity.

Our concentration in commercial real estate loans could result in further increased loan losses.

Commercial real estate (“CRE”) is cyclical and poses risks of loss to us due to our concentration levels and similar risks of the asset. As of December 31, 2011 and 2010, respectively, 44.0 percent and 47.7 percent of our loan portfolio were comprised of CRE loans. The banking regulators continue to give CRE lending greater scrutiny, and banks with higher levels of CRE loans are expected 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 2011, we recorded $2.0 million in provisioning for losses, compared to additions of $31.7 million in 2010 and $124.8 million in 2009, in part reflecting collateral evaluations in response to recent changes in the market values of land collateralizing acquisition and development loans.

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Pursuant to the formal agreement that Seacoast National entered into with the OCC, Seacoast National adopted and implemented a written commercial real estate concentration risk management program. We have continued to reduce our exposure to commercial real estate; however, there is no guarantee that the program will effectively reduce our concentration in commercial real estate.

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 purchases, 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 (the “FHLB”) 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 also 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. Factors that could detrimentally impact our access to liquidity sources include a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. In addition, our access to deposits may be affected by the liquidity and/or cash flow needs of depositors. Although we have historically been able to replace maturing deposits and FHLB advances as necessary, we might not be able to replace such funds in the future and can lose a relatively inexpensive source of funds and increase our funding costs if, among other things, customers move funds out of bank deposits and into alternative investments, such as the stock market, that are perceived as providing superior expected returns. We may be required to seek additional regulatory capital through capital raises at terms that may be very dilutive to existing stockholders. In addition, our liquidity, on a parent only basis, is adversely affected by our current inability to receive dividends from Seacoast National without prior regulatory approval.

Our ability to borrow could also be impaired by factors that are not specific to us, such as further disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of recent turmoil faced by banking organizations and deterioration in credit markets.

The Dodd-Frank Wall Street Reform and Consumer Protection Act could increase our regulatory compliance burden and associated costs or otherwise adversely affect our business.

On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act represents a significant overhaul of many aspects of the regulation of the financial services industry.

The Dodd-Frank Act directs applicable regulatory authorities to promulgate regulations implementing its provisions, and its effect on the Company and on the financial services industry as a whole will be clarified as those regulations are issued. The Dodd-Frank Act addresses a number of issues, including capital requirements, compliance and risk management, debit card overdraft fees, healthcare, incentive compensation, expanded disclosures and corporate governance. The Dodd-Frank Act established a new, independent CFPB, which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards. States will be permitted to adopt stricter consumer protection laws and can enforce consumer protection rules issued by the CFPB.

The Dodd-Frank Act will increase our regulatory compliance burden and may have a material adverse effect on us, including increasing the costs associated with our regulatory examinations and compliance measures. The changes resulting from the Dodd-Frank Act, as well as the resulting regulations promulgated by federal agencies, may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes to comply with new laws and regulations. For a more detailed description of the Dodd-Frank Act, see “Item 1. Business — Supervision and Regulation.”

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Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.

FDIC insurance premiums increased substantially in 2009 and we may 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. The FDIC adopted a revised risk-based deposit insurance assessment schedule on February 27, 2009, which raised deposit insurance premiums. On May 22, 2009, the FDIC implemented a five basis point special assessment of each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009, but no more than 10 basis points times the institution’s assessment base for the second quarter of 2009, collected on September 30, 2009. The FDIC also required all FDIC-insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012, which was paid on December 30, 2009.

We participated in the FDIC’s Temporary Liquidity Guarantee Program (“TLG”) for noninterest-bearing transaction deposit accounts that was extended and expired December 31, 2010. Institutions that participated in the program were required to pay an annualized fee of 15 to 25 basis points in accordance with their risk category rating assigned by the FDIC.

Increased premiums and TLG assessments charged by the FDIC increased our noninterest expenses for 2011, 2010 and 2009.

Under the Dodd-Frank Act, unlimited deposit insurance coverage on noninterest bearing transaction accounts to all FDIC insured institutions was approved through December 31, 2012. Unlike the TLG program, the Dodd-Frank provisions apply at all FDIC insured institutions and will cover only traditional checking accounts that do not pay interest. As of April 1, 2011, the FDIC implemented its new calculation methodology for insurance assessments, applying revised risk category ratings for calculating assessments to total assets less Tier 1 risk-based capital. Deposits will no longer be utilized as the primary base and the base assessment rates will vary depending on the DIF reserve ratio. We have not experienced any negative impact to our consolidated financial statements as a result of the new method.

Current levels of market volatility are unprecedented.

The capital and credit markets have been experiencing volatility and disruption for more than three years. 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, we may 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.

We are required to maintain capital to meet regulatory requirements, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our compliance with regulatory requirements, would be adversely affected.

Both we and Seacoast National must meet regulatory capital requirements and maintain sufficient liquidity and our regulators may modify and adjust such requirements in the future. Seacoast National agreed to an informal letter agreement with the OCC to maintain a Tier 1 leverage capital ratio of 8.50 percent and a total risk-based capital ratio of 12.00 percent, which are higher than the regulatory minimum capital ratios. We also face significant regulatory and other governmental risk as a financial institution and a participant in the TARP CPP.

Our ability to raise additional capital, when and if needed, will depend on conditions in the capital markets, general economic conditions and a number of other factors, including investor perceptions regarding the banking industry and the market, 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.

Although we currently comply with all capital requirements, we may be subject to more stringent regulatory capital ratio requirements in the future and we may need additional capital in order to meet those requirements. Our failure to remain “well capitalized” for bank regulatory purposes could affect customer confidence, our

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ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common and preferred stock, make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operation and financial conditions, generally. Under FDIC rules, if Seacoast National ceases to be a “well capitalized” institution for bank regulatory purposes, its ability to accept brokered deposits may be restricted and the interest rates that it pays may be restricted.

Changes in accounting and tax rules applicable to banks could adversely affect our financial conditions and results of operations.

From time to time, the Financial Accounting Standards Board (the “FASB”) and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior period financial statements.

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. 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 if, and 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.

The TARP CPP and the ARRA impose, and other proposed rules may impose additional, executive compensation and corporate governance requirements that may adversely affect us and our business, including our ability to recruit and retain qualified employees.

The purchase agreement we entered into in connection with our participation in the TARP CPP required us to adopt the Treasury’s standards for executive compensation and corporate governance while the Treasury holds the equity issued pursuant to the TARP CPP, including the common stock which may be issued pursuant to the Warrant, which we refer to as the 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 making any golden parachute payment to a senior executive officer or any of our 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

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• a prohibition of the five highest paid executives from receiving or accruing any bonus, retention award or incentive compensation, or bonus except for long-term restricted stock with a value not greater than one-third of the total amount of annual compensation of the employee receiving the stock.

The Treasury released an interim final rule on TARP standards for compensation and corporate governance on June 10, 2009, which implemented and further expanded the limitations and restrictions imposed on executive compensation and corporate governance by the TARP CPP and ARRA. The new Treasury interim final rules also prohibit any tax gross-up payments to senior executive officers and the next 20 highest paid executives; require a “say on pay” vote in annual shareholders’ meetings; and restrict stock or units that may vest or become transferable granted to executives.

The Federal Reserve has proposed guidelines on executive compensation. The FDIC also has proposed a rule to incorporate employee compensation factors into the risk assessment system which would adjust risk-based deposit insurance assessment rates if the design of certain compensation programs does not satisfy certain FDIC goals to prevent executive compensation from encouraging undue risk-taking. In addition, the Dodd-Frank Act also requires banking regulators to issue regulations or guidelines to prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by providing excessive compensation or that may lead to material loss at certain financial institutions with $1 billion or more in assets. Further, in June, 2010, the Federal Reserve, the OCC, the Office of Thrift Supervision, and the FDIC jointly issued comprehensive final guidance designed to ensure that incentive compensation policies do not undermine the safety and soundness of banking organizations by encouraging employees to take imprudent risks. This regulation significantly restricts the amount, form, and context in which we pay incentive compensation

These provisions and any future rules issued by the Treasury, the Federal Reserve and the FDIC or any other regulatory agencies 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. If we are unable to attract and retain qualified employees to manage and operate our business, we may not be able to successfully execute our business strategy.

The short-term and long-term impact of the new Basel III capital standards and the forthcoming new capital rules for non-Basel U.S. banks is uncertain.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an agreement to a strengthened set of capital requirements for internationally active banking organizations in the United States and around the world, known as Basel III. When implemented by U.S. banking authorities, which have expressed support for the new capital standards. For a more detailed description of Basel III, see “Item 1. Business — Supervision and Regulation.”

TARP lending goals may not be attainable.

Congress and the bank regulators have encouraged 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 recipients of TARP capital, 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, and to report our lending to the Treasury. 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 affected by increased FDIC insurance premiums.

Our continued participation in the TARP CPP may adversely affect our ability to retain customers, attract investors, compete for new business opportunities and retain high performing employees.

Several financial institutions which participated in the TARP CPP have, or are in the process of, repurchasing the preferred stock and repurchasing or auctioning the warrant issued to the Treasury as part of the TARP CPP. We have not requested approval to repurchase the preferred stock and Warrant from the Treasury. In

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order to repurchase one or both securities, in whole or in part, we must establish that we have satisfied all of the conditions to repurchase, and there can be no assurance that we will be able to repurchase these securities from the Treasury.

Our customers, employees, counterparties in our current and future business relationships, and the media may draw negative implications regarding the strength of Seacoast as a financial institution based on our continued participation in the TARP CPP following the exit of certain of our competitors and other financial institutions. Any such negative perceptions may impair our ability to effectively compete with other financial institutions for business. In addition, because we have not yet repurchased the Treasury’s TARP CPP investment, we remain subject to the restrictions on incentive compensation contained in the ARRA and its implementing regulations. Financial institutions which have repurchased the Treasury’s CPP investment are relieved of these restrictions. Due to these restrictions, we may not be able to successfully compete with financial institutions that have repurchased the Treasury’s investment to retain and attract high performing employees. If this were to occur, our business, financial condition and results of operations may be adversely affected, perhaps materially.

Federal banking agencies periodically conduct examinations of our business, including for compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations may adversely affect us.

The Federal Reserve and the OCC periodically conduct examinations of our business and Seacoast National’s business, including for compliance with laws and regulations, and the Bank also may be subject to CFPB participation in its regulatory examinations in the future as discussed in the “Supervision and Regulation” section above. If, as a result of an examination, the Federal Reserve, the OCC and/or the CFPB were to determine that the financial condition, capital resources, asset quality, asset concentrations, earnings prospects, management, liquidity, sensitivity to market risk, or other aspects of any of our or Seacoast National’s operations had become unsatisfactory, or that we or our management were in violation of any law, regulation or guideline in effect from time to time, the regulators may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to change the composition of our concentrations in portfolio or balance sheet assets, to assess civil monetary penalties against our officers or directors or to remove officers and directors.

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 and Palm Beach 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. 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 are dependent on key personnel and the loss of one or more of those key personnel could harm our business.

Our future success significantly depends on the continued services and performance of our key management personnel. We believe our management team’s depth and breadth of experience in the banking industry is integral to executing our business plan. We also will need to continue to attract, motivate and retain other key personnel. The loss of the services of members of our senior management team or other key employees or the inability to attract additional qualified personnel as needed could have a material adverse effect on our business, financial position, results of operations and cash flows.

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We are subject to losses due to fraudulent and negligent acts on the part of loan applicants, mortgage brokers, other vendors and our employees.

When we originate mortgage loans, we rely heavily upon information supplied by loan applicants and third parties, including the information contained in the loan application, property appraisal, title information and employment and income documentation provided by third parties. If any of this information is misrepresented and such misrepresentation is not detected prior to loan funding, we generally bear the risk of loss associated with the misrepresentation.

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 experience increases in deposits and assets as a result of other banks’ difficulties or failure, which would increase the capital we need to support such growth.

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, Nasdaq, the Treasury (since 2008) and the CFPB. 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. These changes, if adopted, could require us to maintain more capital, liquidity and risk controls which could adversely affect our growth, profitability and financial condition.

We are subject to internal control reporting requirements that increase compliance costs and failure to comply with such requirements 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 registered public accounting firm reports on internal controls as part of our annual report on Form 10-K pursuant to Section 404 of the Sarbanes-Oxley Act. We are also subject to a number of disclosure and reporting requirements as a result of our participation in the TARP CPP. The SEC also has proposed a number of new rules or regulations requiring additional disclosure, such as lower-level employee compensation. We expect to continue to spend significant amounts of time and money on compliance with these rules. Our failure to track and comply with the various 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.

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Our information systems may experience an interruption or breach in security.

We rely heavily on communications and information systems provided both internally and externally to conduct our business. Any failure, interruption or breach in security of these systems (such as a spike in transaction volume, a cyber attack or other unforeseen events) could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures and service level agreements designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. While we maintain an insurance policy which we believe provides sufficient coverage at a manageable expense for an institution of our size and scope with similar technological systems, However, we cannot assure that this policy would be sufficient to cover all related financial losses and damages should we experience any one or more of our or a third party’s systems failing or experiencing a cyber attack. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, including remediation costs and increased protection costs, any of which could have a material adverse effect on our financial condition and results of operations.

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, a staggered board of directors and the Protective Amendment, may make any takeover attempts and other acquisitions of interests in us, by means of a tender offer, open market purchase, a proxy fight or otherwise, 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. As a result, our board of directors may decide not to pursue transactions that would otherwise be in the best interests of holders of our common stock.

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 we operate. We cannot predict whether or to what extent damage that may be caused by future hurricanes will affect our 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.

We may engage in FDIC-assisted transactions in the future, which could present additional risks to our business.

We may have future opportunities to acquire the assets and liabilities of failed banks in FDIC-assisted transactions, which present general acquisition risks, as well as risks specific to these transactions. Although FDIC-assisted transactions typically provide for FDIC assistance to an acquiror to mitigate certain risks, which may include loss-sharing, where the FDIC absorbs most losses on covered assets and provides some indemnity, we would be subject to many of the same risks we would face in acquiring another bank in a negotiated transaction, without FDIC assistance, including risks associated with pricing such transactions, the risks of loss of deposits and maintaining customer relationships and the failure to realize the anticipated acquisition benefits

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in the amounts and within the timeframes we expect. In addition, because these acquisitions provide for limited diligence and negotiation of terms, these transactions may require additional resources and time, servicing acquired problem loans and costs related to integration of personnel and operating systems, the establishment of processes to service acquired assets, and require us to raise additional capital, which may be dilutive to our existing shareholders. If we are unable to manage these risks, FDIC-assisted acquisitions could have a material adverse effect on our business, financial condition and results of operations.

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

While we currently seek continued organic growth, as our earnings and capital position improve, 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 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.

Risks Related to our Common Stock

We may issue additional shares of common or preferred stock, which may dilute the interests of our shareholders and may adversely affect the market price of our common stock.

We are currently authorized to issue up to 300 million shares of common stock, of which 94,686,801 shares were outstanding as of December 31, 2011, and up to 4 million shares of preferred stock, of which 2,000 shares are outstanding. During the second quarter of 2010, the Company raised $47.1 million in capital through the issuance of Series B convertible preferred stock. The Series B preferred stock was converted into 34,465,348 shares of common stock five days after approval by our shareholders at the annual shareholders’ meeting on June 22, 2010. Subject to certain Nasdaq requirements, our board of directors has authority, without action or vote of the shareholders, to issue all or part of the remaining authorized but unissued shares and to establish the terms of any series of preferred stock. These authorized but unissued shares could be issued on terms or in circumstances that could dilute the interests of other shareholders.

Certain purchasers of our common stock under our previous dividend reinvestment and stock purchase plan (“DRSPP”) may be entitled to rescind their purchases.

As a result of an administrative error, sales of 19,358 shares of our common stock under the DRSPP between September 23, 2009 and July 29, 2011, which represented 0.02% of our outstanding shares of common stock as of December 31, 2011, may have been made after the expiration of the applicable registration statement. As a result those sales may not have complied with the registration requirements of applicable securities laws, making them unregistered shares. We received only $33,392 in aggregate proceeds from these sales. A number of remedies may be available to DRSPP participants who acquired shares during that period, including a right to rescind their purchases to receive the full price paid by the DRSPP participants, plus interest. No dividends have been paid during this time. Those DRSPP participants who purchased unregistered shares pursuant to the DRSPP during this time frame and whose unregistered shares have fallen in value since the date of purchase could have an incentive to seek such a rescission. The number of shares and dollar amounts involved are immaterial from a financial point of view, but the sale of unregistered shares could subject us to regulatory sanctions by the SEC or other regulatory authorities that might result in the imposition of civil penalties or a rescission offering. Although we do not expect any such actions to have a material adverse effect on us, we are unable to predict the full consequences of these events and regulatory actions.

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The Series A Preferred Stock diminishes the net income available to our common shareholders and earnings per common share, and the Warrant we issued to Treasury may be dilutive to holders of our common stock.

The dividends accrued and the accretion on discount on the Series A Preferred Stock reduce the net income available to common shareholders and our earnings per common share. The Series A Preferred Stock is cumulative, which means that any dividends not declared or paid accumulate and are payable when paying dividends is resumed. Shares of Series A Preferred Stock also receive preferential treatment in the event of liquidation, dissolution or winding up of Seacoast. Additionally, the ownership interest of the existing holders of our common stock will be diluted to the extent the Warrant is exercised. The shares of common stock underlying the Warrant represent approximately 0.6 percent of the shares of our common stock outstanding as of December 31, 2011 (including the shares issuable upon exercise of the Warrant in our total outstanding shares). Although Treasury has agreed not to vote any of the shares of common stock it receives upon exercise of the Warrant, a transferee of any portion of the Warrant or of any shares of common stock acquired upon exercise of the Warrant is not bound by this restriction.

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 adverse to, our common shareholders.

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) the Treasury will have the right to elect two directors to our board of directors until all accrued but unpaid dividends have been paid. We are current with regards to our dividend payments on the Series A Preferred Stock. Other than the right to elect directors, except as required by law, holders of the Series A Preferred Stock have the following 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 66 2/3 percent 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

• consummation of any merger, share exchange or similar transaction unless the 2,000 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 block 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.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

We and Seacoast National’s main office occupies approximately 66,000 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.

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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. In addition, Seacoast National owns an operations center situated on 1.44 acres in a 4,939 square foot building in Okeechobee, Florida; during 2010, 1.81 acres of vacant land adjacent to the Okeechobee operations center was sold. 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.

Seacoast currently operates its Seacoast Marine Finance Division in a 2,009 square foot leased facility in Ft. Lauderdale, Florida, a 430 square foot leased space in Alameda, California and a 1,200 square foot leased space in Newport Beach, California.

Seacoast National maintained approximately 39 branch offices in Florida at December 31, 2011. As of December 31, 2011, the net carrying value of branch offices of Seacoast National (excluding the main office) was approximately $26.6 million. Seacoast National’s branch offices are generally described as follows:

Branch Office	Year Opened	Square Feet	Owned/Leased
Jensen Beach 1000 N.E. Jensen Beach Blvd. Jensen Beach, FL 34957	1977	1,920	Owned
East Ocean 2081 S.E. U.S. Highway 1 Stuart, FL 34996	1978 (relocated in 1995)	2,300	Owned
Cove Road 5755 S.E. U.S. Highway 1 Stuart, FL 34997	1983	3,450	Leased
Hutchinson Island 4392 N.E. Ocean Blvd. Jensen Beach, FL 34957	1984	4,000	Leased
Westmoreland 1108 S.E. Port St. Lucie Blvd. Port St. Lucie, FL 34952	1985 (relocated in 2008)	4,468 (with 1,179 leased to tenants)	Owned building located on leased land
Wedgewood Commons 3200 U.S. Highway 1 Stuart, FL 34997	1988 (relocated in 2009)	5,477 (with 2,641 leased to tenants)	Owned building located on leased land.
Bayshore 247 S.W. Port St. Lucie Blvd. Port St. Lucie, FL 34984	1990	3,520	Leased
Hobe Sound 11711 S.E. U.S. Highway 1 Hobe Sound, FL 33455	1991	8,000 (with 1,225 leased to tenants)	Owned
Fort Pierce 1901 South U.S. Highway 1 Fort Pierce, FL 34950	1991 (relocated in 2008)	5,477 (2,641 leased to tenants)	Owned building located on leased land
Martin Downs 2601 S.W. High Meadow Ave. Palm City, FL 34990	1992	3,960	Owned
Tiffany 9698 U.S. Highway 1 Port St. Lucie, FL 34952	1992	8,250	Owned
Vero Beach 1206 U.S. Highway 1 Vero Beach, FL 32960	1993	3,300	Owned
Cardinal 2940 Cardinal Dr. Vero Beach, FL 32963	1993 (relocated in 2008)	5,435	Leased

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St. Lucie West 1100 S.W. St. Lucie West Blvd. Port St. Lucie, FL 34986	1994 (relocated in 1997)	4,320	Leased
Sebastian Wal-Mart 2001 U.S. Highway 1 Sebastian, FL 32958	1996	865	Leased
South Vero Square 752 U.S. Highway 1 Vero Beach, FL 32962	1997	3,150	Owned
Oak Point 3730 7th Terrace Vero Beach, FL 32960	1997	5,619 (with 2,030 sublet to tenants)	Leased
Vero Wal-Mart Route 60 5555 20th Street Vero Beach, FL 32966	1997	750	Leased
Sebastian West 1110 Roseland Rd. Sebastian, FL 32958	1998	3,150	Owned
Jensen West 4151 N.W. U.S. Highway 1 Jensen Beach, FL 34957	2000	3,930	Leased
Tequesta 710 N. U.S. Highway 1 Tequesta, FL 33469	2003	3,500	Owned
Jupiter 585 W. Indiantown Rd. Jupiter, FL 33458	2004	2,881	Owned building located on leased land
Vero 60 West 6030 20th Street Vero Beach, FL 32966	2005	2,500	Owned
Downtown Orlando 65 N. Orange Ave. Orlando, FL 32801	2005	6,752	Leased
Maitland 541 S. Orlando Ave. Maitland, FL 32751	2005	4,536	Leased
Longwood 2101 W. State Rd. 434 Longwood, FL 32779	2005	4,596	Leased
PGA Blvd. 3001 PGA Blvd. Palm Beach Gardens, FL 33410	2006	13,454	Leased
South Parrott 1409 S. Parrott Ave. Okeechobee, FL 34974	2006	8,232	Owned
North Parrott 500 N. Parrott Ave. Okeechobee, FL 34974	2006	3,920	Owned
Arcadia 1601 E. Oak St. Arcadia, FL 34266	2006 (expanded in 2008)	3,256	Owned
Moore Haven 601 U.S. Highway 27 Moore Haven, FL 33471	2006	640	Leased

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Wauchula 202 N. 6th Ave. Wauchula, FL 33873	2006	4,278	Leased
Clewiston 300 S. Berner Rd. Clewiston, FL 33440	2006	5,661	Owned
LaBelle 17 N. Lee St. LaBelle, FL 33935	2006	2,361	Owned
Lake Placid 199 U.S. Highway 27 North Lake Placid, FL 33852	2006	2,125	Owned
Viera – The Avenues 6711 Lake Andrew Dr. Viera, FL 32940	2007	5,999	Leased
Murrell Road 5500 Murrell Rd. Viera, FL 32940	2008	9,041 (with 2,408 leased to tenants and 1,856 to be leased)	Leased
Gatlin Boulevard 1790 S.W. Gatlin Blvd. Port St. Lucie, FL 34953	2008	5,300 (with 2,518 available for leasing)	Owned

For additional information regarding our properties, please refer to Notes G and K of the Notes to Consolidated Financial Statements in Our 2011 Annual Report, certain portions of which are incorporated herein by reference pursuant to Part II, Item 8 of this report.

No new or planned offices are projected to open over the remainder of 2012.

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 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.

Item 4.    Mine Safety Disclosures

Not applicable.

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 March 7, 2012 there were 94,705,727 shares of our common stock outstanding, held by approximately 1,756 record holders.

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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 Seacoast Common Stock				Quarterly Dividends Declared Per Share of Seacoast Common Stock
	High		Low
2010
First Quarter	$	2.10	$	1.35	$	0.00
Second Quarter		2.57		1.21		0.00
Third Quarter		1.49		1.10		0.00
Fourth Quarter		1.55		1.10		0.00
2011
First Quarter	$	1.94	$	1.30	$	0.00
Second Quarter		1.92		1.40		0.00
Third Quarter		1.77		1.26		0.00
Fourth Quarter		1.69		1.16		0.00

Dividends

Dividends from Seacoast National are 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 common stock to de minimis $0.01. On May 19, 2009, the Company’s board of directors voted to suspend quarterly dividends on common stock.

We needed prior Treasury approval to increase our quarterly cash dividends above $0.01 per common share through the earliest of (i) December 19, 2011, (ii) the date we redeem all shares of Series A Preferred Stock or (iii) the Treasury has transferred all shares of Series A Preferred Stock to non-affiliated third parties. Even though the December 19, 2011 criteria has been met and we are current in the payment of quarterly dividends on the Series A Preferred Stock, any dividends paid on our common stock would be declared and paid at the discretion of our board of directors and would be dependent upon our liquidity, financial condition, results of operations, capital requirements and such other factors as our board of directors may deem relevant. We do not expect to pay dividends in the foreseeable future and expect to retain all earnings, if any, to support our capital adequacy and growth.

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 2011 Annual Report, portions of which are incorporated by reference herein, including in Part II, Item 8 of this report. See “Item 1. Business- Payments of Dividends” for information with respect to the regulatory restrictions on dividends.

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. Pursuant to the terms of the Warrant, as a result of the Company’s public offering in the third quarter of 2009, the number of shares under the Warrant was reduced by 50 percent to 589,623 shares. 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.

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Item 6.    Selected Financial Data

Selected financial data of the Company is set forth under the caption “Financial Highlights” in the 2011 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 — 2011 Management’s Discussion and Analysis” in the 2011 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 2011 Annual Report is incorporated herein by reference. Table 19, “Interest Rate Sensitivity Analysis”, the narrative under the heading “Securities”, and the narrative under the heading “Interest Rate Sensitivity” in the 2011 Annual Report are incorporated herein by reference. The information regarding securities owned by usas set forth in Table 15, “Securities Held for Sale” and Table 16, “Securities Held for Investment,” in the 2011 Annual Report is incorporated herein by reference.

Item 8.    Financial Statements and Supplementary Data

The report of KPMG LLP, an independent registered public accounting firm, and the Consolidated Financial Statements included in the 2011 Annual Report are incorporated herein by reference. “Quarterly Consolidated Income Statements” are included in the 2011 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, 2011. 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, 2011, 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 23.1 to this report.

46

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 2012 Proxy Statement, as well as under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2012 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” and “Director Compensation” in the 2012 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, 2011.

Equity Compensation Plan Information

December 31, 2011

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by shareholders:
2000 Plan (1)		535,311	$	21.43		500,718
2008 Plan (2)		—		—		440,930
Employee Stock Purchase Plan (3)		—		—		103,101
TOTAL		535,311	$	21.43		1,044,749

(1) 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 under the plan and may be granted as awards of performance shares, and awards of restricted stock or stock-based awards.

(2) 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.

47

(3) 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 “Security Ownership of Management and Certain Beneficial Holders” in the 2012 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 2012 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 “Relationship with Independent Registered Public Accounting Firm; Audit and Non-Management Audit Fees” in the 2012 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 firm of Seacoast, included in the 2011 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 Firm

Consolidated Balance Sheets as of December 31, 2011 and 2010

Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009

Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2011, 2010 and 2009

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009

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 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 3.1.1 Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed May 10, 2006.

48

Exhibit 3.1.2 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 3.1.3 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.4 to the Company’s Form S-1, filed June 22, 2009.

Exhibit 3.1.4 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed July 20, 2009.

Exhibit 3.1.5 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed December 3, 2009.

Exhibit 3.1.6 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K/A, filed July 14, 2010.

Exhibit 3.1.7 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 25, 2010.

Exhibit 3.1.8 Articles of Amendment to the Amended and Restated Articles of Incorporation

Incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K, filed June 1, 2011.

Exhibit 3.2 Amended and Restated By-laws of the Corporation

Incorporated herein by reference from Exhibit 3.2 to the Company’s Form 8-K, filed December 21, 2007.

Exhibit 4.1 Specimen Common Stock Certificate

Incorporated herein by reference from the Company’s Form 10-K, dated March 28, 2003.

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 Exhibit 10.1 to the Company’s Form 8-K filed April 5, 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 Exhibit 10.2 to the Company’s Form 8-K filed April 5, 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 Exhibit 10.3 to the Company’s Form 8-K filed April 5, 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 Exhibit 10.1 to the Company’s Form 8-K filed December 21, 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 Exhibit 10.2 to the Company’s Form 8-K filed December 21, 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 Exhibit 10.3 to the Company’s Form 8-K filed December 21, 2005.

Exhibit 4.8 Indenture

49

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 Exhibit 10.1 to the Company’s Form 8-K filed July 3, 2007.

Exhibit 4.9 Guarantee Agreement

Dated June 29, 2007, between the Company, as Guarantor, and LaSalle Bank, as Guarantee Trustee, incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K filed July 3, 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 Exhibit 10.3 to the Company’s Form 8-K filed July 3, 2007.

Exhibit 4.13 Specimen Preferred Stock Certificate

Incorporated herein by reference from Exhibit 4.1 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 4.14 Warrant for Purchase of Shares of Common Stock

Incorporated herein by reference from Exhibit 4.2 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 4.15 Stock Purchase Agreement

Dated October 23, 2009, between the Company and CapGen Capital Group III, L.P., incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed October 29, 2009.

Exhibit 4.16 Registration Rights Agreement

Dated October 23, 2009, between the Company and CapGen Capital Group III, L.P., incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K, filed October 29, 2009.

Exhibit 4.17 Registration Rights Agreement

Dated as of April 8, 2010, among the Company and the investors named on the signature pages thereto, incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K/A, filed July 14, 2010.

Exhibit 10.1 Amended and Restated Retirement Savings Plan*

Incorporated herein by reference from Exhibit 10.1 to the Company’s Annual Report on Form 10-K, filed March 15, 2011.

Exhibit 10.2 Amended and Restated Employee Stock Purchase Plan*

Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the Commission on April 27, 2009.

Exhibit 10.3 Dividend Reinvestment and Stock Purchase Plan

Incorporated by reference to the Company’s Form S-3 filed on November 9, 2011.

Exhibit 10.4 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 10.5 Executive Employment Agreement*

Dated January 2, 2007 between Harry R. Holland, III and the Bank, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed January 3, 2007.

Exhibit 10.6 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, filed November 15, 2000.

Exhibit 10.7 Executive Deferred Compensation Plan*

Incorporated herein by reference from Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed March 30, 2001.

50

Exhibit 10.8 Change of Control Employment Agreement*

Dated December 24, 2003 between Dennis S. Hudson, III and the Company, incorporated herein by reference from Exhibit 10.14 to the Company’s Form 8-K, filed December 29, 2003.

Exhibit 10.9 Change of Control Employment Agreement*

Dated December 24, 2003 between William R. Hahl and the Company, incorporated herein by reference from Exhibit 10.17 to the Company’s Form 8-K, filed December 29, 2003.

Exhibit 10.10 Directors Deferred Compensation Plan*

Dated June 15, 2004, but effective July 1, 2004, incorporated herein by reference from Exhibit 10.23 to the Company’s Annual Report on Form 10-K, filed on March 17, 2005.

Exhibit 10.11 Executive Employment Agreement*

Dated March 26, 2008 between O. Jean Strickland and the Bank and Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed March 26, 2008.

Exhibit 10.12 2008 Long-Term Incentive Plan*

Incorporated herein by reference from Exhibit A to the Company’s Proxy Statement on Form DEF 14A, filed March 18, 2008.

Exhibit 10.13 Letter Agreement

Dated December 19, 2008, between the Company and the United States Department of the Treasury incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 10.14 Formal Agreement

Dated December 16, 2008, between the Company and the Office of the Comptroller of the Currency incorporated herein by reference from Exhibit 10.4 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 10.15 Waiver of Senior Executive Officers*

Dated December 19, 2008, issued to the United Stated Department of the Treasury incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 10.16 Consent of Senior Executive Officers*

Dated December 19, 2008, issued to the United States Department of the Treasury incorporated herein by reference from Exhibit 10.3 to the Company’s Form 8-K, filed December 23, 2008.

Exhibit 10.17 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 Exhibit 10.1 to the Company’s Form 8-K, filed January 5, 2009.

Exhibit 10.18 Investment Agreement

Dated as of April 8, 2010, among Seacoast Banking Corporation of Florida and the investors named on the signature pages thereto, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K/A filed July 14, 2010.

Exhibit 13 2011 Annual Report.    The following portions of the 2011 Annual Report are incorporated herein by reference:

Financial Highlights

Financial Review — Management’s Discussion and Analysis

Selected Quarterly Information — Quarterly Consolidated Income Statements

Consolidated Financial Statements

Notes to Consolidated Financial Statements

Financial Statements — Reports 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

51

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 and Section 111 the Emergency Economic Stability Act, as amended

Exhibit 32.2** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 111 the Emergency Economic Stability Act, as amended

Exhibit 99.1 31 C.F.R. § 30.15 Certification of Chief Executive Officer

Exhibit 99.2 31 C.F.R. § 30.15 Certification of Chief Financial Officer

Exhibit 101 The following materials from Seacoast Banking Corporation of Florida’s Annual Report on Form 10-K for the year ended December 31, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Shareholders Equity, (v) the Notes to Condensed Consolidated Financial Statements. Incorporated herein by reference from Exhibit 101 to the Company’s Annual Report on Form 10-K, filed March 14, 2012.

* 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 under item (a)(3) above.

(c)  Financial Statement Schedules

None.

52

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.

SEACOAST BANKING CORPORATION OF FLORIDA

(Registrant)

By:	/s/    Dennis S. Hudson, III
	Dennis S. Hudson, III
	Chairman of the Board and Chief Executive Officer
By:	/s/    William R. Hahl
	William R. Hahl
	Executive Vice President and Chief Financial Officer

Date: April 10, 2012

EX-13

FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share data)	2011			2010			2009			2008			2007
FOR THE YEAR
Net interest income	$	66,839		$	66,212		$	73,589		$	77,231		$	84,469
Provision for loan losses		1,974			31,680			124,767			88,634			12,745
Noninterest income:
Securities gains (losses)		1,220			3,687			5,399			355			(5,048	)
Other		18,345			18,134			17,495			20,190			22,528
Noninterest expenses		77,763			89,556			130,227			76,839			75,041
Income (loss) before income taxes		6,667			(33,203	)		(158,511	)		(67,697	)		14,163
Provision (benefit) for income taxes		0			0			(11,825	)		(22,100	)		4,398
Net income (loss)		6,667			(33,203	)		(146,686	)		(45,597	)		9,765
Per Share Data
Net income (loss) available to common shareholders:
Diluted		0.03			(0.48	)		(4.74	)		(2.41	)		0.51
Basic		0.03			(0.48	)		(4.74	)		(2.41	)		0.52
Cash dividends declared		0.00			0.00			0.01			0.34			0.64
Book value per share common		1.29			1.28			1.82			8.98			11.22
Dividends to net income		0.0	%		0.0	%		n/m	(1)		n/m	(1)		124.8	%
AT YEAR END
Assets	$	2,137,375		$	2,016,381		$	2,151,315		$	2,314,436		$	2,419,874
Securities		668,339			462,001			410,735			345,901			300,729
Net loans		1,182,509			1,202,864			1,352,311			1,647,340			1,876,487
Deposits		1,718,741			1,637,228			1,779,434			1,810,441			1,987,333
Shareholders’ equity		170,077			166,299			151,935			216,001			214,381
Performance ratios:
Return on average assets		0.32	%		(1.60	)%		(6.58	)%		(1.97	)%		0.42	%
Return on average equity		4.03			(19.30	)		(73.79	)		(22.25	)		4.46
Net interest margin(2)		3.42			3.37			3.55			3.58			3.92
Average equity to average assets		8.01			8.27			8.92			8.87			9.41

(1) Not meaningful

(2) On a fully taxable equivalent basis

Other noninterest income and noninterest expense includes relass of merchant expense for 2010 — 2007 to conform with 2011 presentation. Entries in blue are manual entries from the earnings press release.

FINANCIAL SECTION

CONTENTS

Management’s Discussion & Analysis of Financial Condition and results of Operations	2
Financial Tables	36
Report of Independent Registered Public Accounting Firm	51
Audited Consolidated Financial Statements	53

1

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion and analysis is to aid in understanding significant changes in the financial condition of Seacoast Banking Corporation of Florida and its subsidiaries (the “Company”) and their results of operations during 2011, 2010 and 2009. Nearly all of the Company’s operations are contained in its banking subsidiary, Seacoast National Bank (“Seacoast National” or the “Bank”). This discussion and analysis is intended to highlight and supplement information presented elsewhere in the annual report on Form 10-K, particularly the consolidated financial statements and related notes appearing in Item 8. 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.

Overview

Recent years have been difficult for the U.S. economy and for the financial services industry. The Company’s earnings have been negatively impacted by higher credit costs, primarily the result of loan portfolio pressure stemming from ongoing deterioration in real estate values, as well as increasing unemployment and other factors. Located in Florida, our markets have experienced property value declines, which began in late 2007 and continued through 2011. While the Company did not have material exposure to many of the issues that originally plagued the industry (e.g., sub-prime loans, structured investment vehicles and collateralized debt obligations), the Company’s exposure to construction and land development and the residential housing sector pressured its loan portfolio, resulting in increased credit costs and foreclosed asset expenses. As the economic downturn continued, consumer confidence and weak economic conditions began to impact areas of the economy outside of the housing sector and restrained new loan demand from credit worthy borrowers. Throughout this difficult operating environment, the Company has been proactively positioning its business for growth by aggressively focusing on improving credit quality, de-risking the overall loan portfolio, disposing of problem assets, and focusing on growing core deposits.

During the year ended December 31, 2011, we made good progress pursuing our strategic plan, even though there were significant headwinds from the operating and interest rate environment. We began to see positive results in our effort to return to profitability. Specifically, revenue grew and net interest income increased, as a result of increased loan production and deposit growth. Noninterest income also increased, as a result of growth in key activities such as mortgage banking gains, and fees earned from increased households and business deposit relationships and from wealth management services. These successes were a direct result of implementing the strategic plan adopted by our board of directors two years ago and refined further in 2011. In 2011, improved tactical execution and our improved condition supported better growth for both consumer household and commercial relationships.

Over the last two years, the company has improved the risk profile of its balance sheet by increasing capital, maintaining appropriate reserves, and reducing the concentrations of higher risk commercial real estate loans. The same disciplined approach we used to bring down credit risk on our balance sheet in order to restore earnings is now supporting the execution of our growth plan. We believe our targeted plan to grow our customer franchise is the best way to build shareholder value going forward.

As a result of these efforts, the Company reported net income of $358,000, $1,113,000, $2,648,000 and $2,548,000 for the first, second, third and fourth quarters of 2011, resulting in an aggregate net income of $6,667,000 for 2011, and its first profits since the first quarter of 2008. Net income available to common shareholders (after preferred dividends and accretion of preferred stock discount) for 2011 totaled $2.9 million or $0.03 per average common diluted share, a significant improvement when compared to a net loss available to common shareholders of $37.0 million or $0.48 per average share diluted for 2010. The improved performance for 2011 reflects lower credit costs (including lower provisioning for loan losses and releases from our allowance for loan losses), and our determination in tackling risk exposures over the past couple of years while planning for growth prospectively.

2

The Company’s capital is expected to continue to increase with earnings. The board and management continue to review the Company’s potential capital management options and currently believe that the Company’s overall level of capital is sufficient given the current economic environment. As earnings continue to increase and asset quality improves, we believe that more financing options will emerge for the Company when dividends can be prudently paid to the Company by the Bank. However, the Company has no immediate plans to repay the Treasury’s Troubled Asset Relief Program (“TARP”) Capital Purchase Program (“CPP”) investment of $50 million outstanding at December 31, 2011. At this time, we view this capital as an important component of our capital structure.

Dissolution of the Bank’s Subsidiary, FNB Brokerage Services, Inc. (“FNB Brokerage”)

In early 2011, we established a contractual relationship with Invest Financial Corporation (“Invest Financial”), whereby brokerage activities for our customers would no longer be conducted through a separate Bank subsidiary. As of March 18, 2011, our brokers became dual employees of the Bank and Invest Financial. The benefit has been lower operating costs for the Bank without disrupting our wealth management business because our customers continue to be serviced by bankers they are familiar with. As a result, the transition has truly been transparent to our clients. On December 31, 2011, FNB Brokerage (the Bank’s full service brokerage subsidiary) was dissolved.

Our Business

The Company is a single-bank holding company with operations on Florida’s southeast coast (ranging from Palm Beach County in the south to Brevard County in the north) as well as Florida’s interior around Lake Okeechobee and up through Orlando. The Company has 39 full service offices. The Company, through Seacoast National, provides a broad range of community banking services to commercial, small business and retail customers, offering a variety of transaction and savings deposit products, treasury management services, investment brokerage services, secured and unsecured loan products, including revolving credit facilities, letters of credit and similar financial guarantees. Seacoast National also provides trust and investment management services to retirement plans, corporations and individuals.

The coastal markets in which the Company operates have had population growth rates of over 20 percent and while the recession has adversely affected these markets, we expect these markets will prove resilient because these areas are attractive markets in which to live. Prospectively, the Company may consider strategic acquisitions as part of the Company’s overall future growth plans in complementary and attractive markets within the State of Florida.

Strategic Review

The Company operates both a full retail banking strategy in its core markets, which are some of Florida’s wealthiest, as well as a complete commercial banking strategy. The Company’s core markets are comprised of Martin, St. Lucie and Indian River counties located on Florida’s southeast coast and Okeechobee County which is contiguous to these coastal counties. Our core markets contain 25 of our 39 retail locations, including four private banking centers. Because of the branch coverage in these markets, the Company has a significant presence providing convenience to customers, and resulting in a larger deposit market share. The Company’s deposit mix is favorable with 69 percent of average deposit balances comprised of NOW, savings, money market and noninterest bearing transaction customer accounts. The cost of deposits averaged 0.65 percent for 2011 (compared to 0.90 percent for 2010 and 1.39 percent for 2009), which the Company believes ranks among the lowest when compared to other banks operating in the Company’s market. The Company has improved its acquisition, retention and mix of deposits and has benefited from lower rates paid for interest bearing liabilities due to the Federal Reserve’s reduction in interest rates. This has resulted in lower funding costs and improved profitability. As part of the Company’s complete retail product and service offerings, customers are provided wealth management services through our trust wealth management division and brokerage services through our relationship with Invest Financial.

3

The Company’s net interest margin increased 5 basis points to 3.42 percent during 2011 from 2010, after declining from 3.55 percent in 2009 to 3.37 percent for 2010. During 2011, a further decline in loans of 2.6 percent, and lower loan and investment security yields were largely offset by improved loan quality, a larger investment securities portfolio and reduced deposit costs. Loans as a percentage of average earning assets declined and securities increased during 2011 year over year, contributing to the yield on average earning assets for 2011 declining 16 basis points from 2010. However, both commercial and residential loan production improved as 2011 progressed. In 2011, the Company had commercial/commercial real estate loan production of $63 million, compared to more limited production of $10 million and $14 million, respectively, for 2010 and 2009. Lower loan production for 2010 and 2009 was reflective of the unprecedented housing and commercial real estate market decline and recessionary environment generally, as well as the Company’s efforts to reduce its concentration in commercial real estate and construction and land development loans, which began in 2007. In addition, the Company closed $191 million in residential loans during 2011, an improvement over 2010’s result of $152 million, as well as 2009’s result of $145 million. Stabilizing home values and lower interest rates have improved the Company’s residential loan production in each of the past three years. Improved loan production is expected to continue, and will be accomplished by increasing market share as growth returns and Florida’s economy improves.

Seacoast National entered into a formal agreement with the Office of the Comptroller of the Currency (the “OCC”) on December 16, 2008 to improve its asset quality. Under the formal agreement, Seacoast National’s board of directors 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 loan (“CRE”) concentrations in light of current adverse CRE market conditions. The Company believes it has complied with this formal agreement.

While loan production improved in 2011, the Company continued to see decreases in commercial real estate construction and land development loans. As of December 31, 2011 and 2010, our commercial real estate, or “CRE”, loans were $530.9 million and $591.4 million, respectively, down 10.2 percent and 16.6 percent from the respective prior years in accordance with management’s plans to reduce concentrations. Under regulatory guidelines for commercial real estate concentrations, Seacoast National’s total commercial real estate loans outstanding at December 31, 2011 (as defined in the guideline) represented 174 percent of risk-based capital, which is below the regulatory threshold for extra scrutiny. Our construction and land development loans were $49.2 million at December 31, 2011, down $30.1 million from $79.3 million at December 31, 2010, which was down $83.6 million from $162.9 million at December 31, 2009. The size of our average commercial construction and land development loans has also decreased over the three year period from $939,000 in 2009 to $735,000 in 2010 to $418,000 in 2011.

The Board of Governors of the Federal Reserve System (the “Federal Reserve”) has made a historic effort over the past four years to rejuvenate the economy and limit the effect of the recession by lowering interest rates to 0 to 25 basis points and expanding various liquidity programs. Recently, the Federal Reserve reaffirmed its forecast for a moderate economic recovery through 2013. As a result of the slow economic recovery, the Federal Reserve has reaffirmed that it will maintain key interest rates at record lows for an extended period of time through 2014. These low rates impact our net interest margin. For fourth quarter 2011, our net interest margin was successfully managed to 3.42 percent, identical to last year’s fourth quarter margin. Prospectively, our focus will be on continuing to improve our deposit mix and adding to our loan balances to offset compressed interest rate spreads expected over the next year.

Our local economy in Florida appears to be in the early stages of a recovery. The real estate market is becoming stronger as pricing continues to firm and sales volumes continue to increase. Many seasonal businesses are now reporting improving trends, and while unemployment is high it is starting to improve. We have now been in this economic cycle long enough to fully reveal its real impacts. The recession and banking crisis significantly impacted community banks in Florida and our primary competition now are the mega-banks, and there are fewer of them to compete with today. Many of these large institutions are struggling with higher capital

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requirements and new restrictions and regulations that are requiring difficult choices regarding the business models that they have operated under for years. All of this has negatively impacted the customers of our mega-bank competitors. We believe we may be entering a period of opportunity to achieve meaningful market share gains from our mega-bank competition.

Loan Growth and Lending Policies

In recent years, as the economic environment in Florida weakened, the Company increased its focus and monitoring of its 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 utilized loan sales to better control the level of these assets and other commercial real estate loans, with $28 million in loan sales during 2011 and 2010, and $89 million in loan sales during 2009. Overall, the Company reduced its exposure to residential land, acquisition and development loans from its peak of $352 million or 20.2 percent of total loans in early 2007 to $11 million or 0.9 percent at December 31, 2011.

For 2011, 2010 and 2009, balances in the loan portfolio declined 2.6 percent, 11.2 percent and 16.7 percent, respectively, reflecting the recessionary climate, significantly lower loan demand and loan sales. During 2011, negative loan growth slowed in the first and second quarter and loans increased 1.6 percent in the third quarter and remained level in the fourth quarter, as increased production occurred in residential and commercial lending compared to prior quarters. We expect the loan growth trend will build momentum into 2012, particularly if the local economy continues to show signs of improvement. The Company expects loan growth opportunities for all types of lending to improve as the economy recovers, including commercial lending to targeted customer segments, and 1-4 family agency conforming residential mortgages. During the past year, we began to expand our business banking teams and are looking for new team members for our production teams in Orlando and Palm Beach. Achieving revenue producing growth objectives for 2012, together with continued reductions in credit costs and reduced problem loan credit expenses, provides us with a potential to make meaningful improvements in our bottom line results as 2012 unfolds.

Deposit Growth, Mix and Costs

The Company’s focus on high quality customer service and convenient branch locations supports its strategy to provide stable, low cost deposit funding growth over the long term. Over the past four years, the Company has strengthened its retail deposit franchise using new strategies and product offerings, while maintaining its focus on building customer relationships. In 2011, Seacoast National added 7,897 new core deposit households, up 1,408 or 21.6 percent from the prior year. Retail household growth for 2011 improved as a result of the Company’s retail deposit program and enhanced efforts to attract new commercial deposit accounts. Our household growth also helped us maintain a stable net interest margin throughout the year.

Interest rates decreased dramatically during 2008 and 2009 as the economic climate worsened and the Federal Reserve implemented interest rate reduction strategies. As a result, the Company has proactively worked to improve its deposit funding mix. During 2011 and 2010, average low cost NOW, savings and money market deposits and no cost demand deposits increased 3.0 percent and 4.9 percent on an aggregate basis, respectively, year over year. Also, certificates of deposit (CDs) declined $67.0 million and $137.4 million during 2011 and 2010, respectively, in part due to a decline of $2.5 million and $31.6 million in higher cost brokered CDs over each period compared. The Company believes that its overall deposit mix remains favorable and its average cost of deposits, including noninterest bearing demand deposits, remains low. The average cost of deposits for the Company continued to trend lower in 2011. In 2011, the cost of deposits was 0.65 percent, decreasing 25 basis points from 0.90 percent for the prior year and 74 basis points from 1.39 percent in 2009. During 2011 and 2010, noninterest bearing demand deposits increased 13.4 percent and 7.8 percent, respectively.

During 2011, total deposits increased $82 million, or 5.0 percent and sweep repurchase agreements increased $38 million, or 38.7 percent, versus 2010. In comparison, total deposits declined $142 million or 8.0 percent and sweep repurchase agreements decreased $7 million or 7.1 percent during 2010, compared to 2009.

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Declines in brokered CDs and single service deposit customers were the primary cause of the overall decline in deposits during 2010 and most of the decline in sweep repurchase agreements during 2010 was in public funds, principally from lower tax collector receipts. While declines in CDs continued in 2011, growth in core deposit relationships more than offset such decline. As reported throughout 2011 and 2010, the Company has been executing a retail strategy and has experienced strong growth in core deposit relationships when compared to prior results. In the fourth quarter of 2011, new household deposit relationships were particularly strong, with new personal checking retail relationships opened during the quarter rising 20.2 percent from the same quarter a year ago and 27.3 percent from the third quarter of 2011. Likewise, new commercial business checking deposit relationships increased by 11.8 percent compared with the same quarter one year ago. New personal checking relationships have also increased as a result of our programs, with improved market share, increased average services per household and decreased customer attrition.

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 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. Management, after consultation with the Company’s Audit Committee, believes the most critical accounting estimates and assumptions that involve the most difficult, subjective and complex assessments are:

• the allowance and the provision for loan losses;

• the fair value and other than temporary impairment of securities;

• realization of deferred tax assets; and

• contingent liabilities.

The following is a 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 “Note A-Significant Accounting Policies” to the Company’s consolidated financial statements).

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, factors beyond the control of the Company, such as general economic conditions, both locally and nationally, 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 FASB Accounting Standards Codification (“ASC”) 310, Receivables as well as, an analysis of homogeneous loan pools not individually evaluated as prescribed under ASC 450, Contingencies. For 2011 we recorded a lower provision for loan losses of $2.0 million, which represented a substantial improvement over provisioning in 2010 of $31.7 million. The net charge-offs for 2011 totaled $14.2 million or 1.16 percent of average total loans for the year, significantly lower than net charge-offs for 2010 which totaled $39.1 million or 2.95 percent of average total loans. Delinquency trends show continued stability (see “Nonperforming Assets”).

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

Net charge-offs during 2010 were higher due to higher losses in the commercial construction and land development portfolio secured by residential land. The higher charge-offs reflected declining real estate values and the Company reducing its commercial real estate (“CRE”) loan concentrations by selling $27.6 million of loans which accounted for $11.1 million of total net charge-offs during 2010. Sales of loans in 2011 had a more limited impact on net charge-offs. The Company’s residential construction and land development loans have been reduced to $11.3 million or 0.9 percent of total loans at December 31, 2011 (see “Loan Portfolio”). Total commercial real estate (“CRE”) loans declined 10.2 percent from $591.4 million at December 31, 2010 to $530.9 million at December 31, 2011.

The Company has reduced its exposure to large residential construction and land development loans, as evidenced by no outstanding balance for loans in this portfolio with balances of $4 million or more at December 31, 2010 and 2011. At December 31, 2011, of the remaining $11.3 million in residential construction and land development loans with balances of less than $4 million, $1.1 million or 10 percent are classified as nonperforming. The Company believes the reduced concentration reduces overall risk in its loan portfolio.

The Company’s other loan portfolios related to residential real estate are amortizing 1-4 family mortgage loans. The Company has never offered sub-prime, Alt A, Option ARM or any negative amortizing residential loans, programs or products, although it has originated and holds residential mortgage loans from borrowers with original or current FICO credit scores that are currently less than “prime” FICO credit scores. 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. Home equity loans (amortizing loans for home improvements with maturities of 10 to 15 years) totaled $60.3 million and home equity lines totaled $54.9 million at December 31, 2011, compared to $73.4 million and $57.7 million at December 31, 2010. Each borrower’s credit was documented as part of the Company’s underwriting of home equity lines. The Company does not promote home equity lines greater than 80 percent of value or use credit scoring solely as the underwriting criteria. Therefore, this portfolio of loans, primarily to customers with other relationships to Seacoast National, has performed better than portfolios of our peers. Net charge-offs for the twelve months ended 2011 totaled $683,000 for home equity lines, compared to $1,694,000 for 2010, and home equity lines past due 90 days or more and nonaccrual lines (aggregated) were $449,000 at December 31, 2011 and $1,738,000 at December 31, 2010.

Since year-end 2010, nonaccrual loans declined by $39.8 million to $28.5 million at December 31, 2011 (see “Nonperforming Assets”). Loans have declined $32.5 million or 2.6 percent since year-end 2010 (see “Loan Portfolio”).

Congress and bank regulators have encouraged recipients of Troubled Asset Relief Program (“TARP”) capital to use such capital to make more loans. In that respect, the Company has successfully increased its residential mortgage production in 2011 and 2010. A total of 1,310 applications were taken during 2011 with an aggregate value of $312 million with $191 million in loans closed, and 1,168 applications were taken in 2010 with an aggregate value of $244 million with $152 million in loans closed. Existing home sales and home mortgage loan refinancing activity in the Company’s markets have increased, however demand for new home construction is expected to remain soft.

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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 declined to a total of $25,565,000 or 2.12 percent of total loans at December 31, 2011. This amount represents $12,179,000 less than at December 31, 2010. The allowance for loan losses totaled $37,744,000 or 3.04 percent of total loans at December 31, 2010, $7,448,000 less than at December 31, 2009. The allowance for loan losses framework has two basic elements: specific allowances for loans individually evaluated for impairment, and a formula-based component for pools of homogeneous loans within the portfolio that have similar risk characteristics, which are not individually evaluated.

The first element of the ALLL analysis involves the estimation of allowance specific to individually evaluated impaired loans, including accruing and nonaccruing restructured commercial and consumer loans. In this process, a specific allowance is established for impaired loans based on an analysis of the most probable sources of repayment, including discounted cash flows, liquidation of collateral, or the market value of the loan itself. It is the Company’s policy to charge off any portion of the loan deemed a loss. Restructured consumer loans are also evaluated in this element of the estimate. As of December 31, 2011, the specific allowance related to impaired loans individually evaluated totaled $7.0 million, compared to $14.4 million as of December 31, 2010.

The second element of the ALLL, the general allowance for homogeneous loan pools not individually evaluated, is determined by applying allowance factors to pools of loans within the portfolio that have similar risk characteristics. The general allowance factors are determined using a baseline factor that is developed from an analysis of historical net charge-off experience and qualitative factors designed and intended to measure expected losses. These baseline factors are developed and applied to the various loan pools. Adjustments may be made to baseline reserves for some of the loan pools based on an assessment of internal and external influences on credit quality not fully reflected in the historical loss. These influences may include elements such as changes in concentration risk, macroeconomic conditions, and/or recent observable asset quality trends.

In addition, our analyses of the adequacy of the allowance for loan losses also takes into account qualitative factors such as credit quality, loan concentrations, internal controls, audit results, staff turnover, local market conditions and loan growth.

The Company’s independent Credit Administration Department assigns all loss factors to the individual internal risk ratings based on an estimate of the risk using a variety of tools and information. Its estimate includes consideration of the level of unemployment which is incorporated into the overall allowance. In addition, the portfolio is segregated into a graded loan portfolio, residential, installment, home equity, and unsecured signature lines, and loss factors are calculated for each portfolio. The loss factors assigned to the graded loan portfolio are based on historical migration of actual losses by grade and a range of losses over various periods. Loss factors for the other portfolios are based on historical losses over the prior 12 months and prospective factors that consider loan type, delinquencies, loan to value, purpose of the loan, and type of collateral.

Our charge-off policy meets or exceeds regulatory minimums. Losses on unsecured consumer loans are recognized at 90 days past due compared to the regulatory loss criteria of 120 days. Secured consumer loans, including residential real estate, are typically charged-off or charged down between 120 and 180 days past due, depending on the collateral type, in compliance with Federal Financial Institution Examination Council guidelines. Commercial loans and real estate loans are typically placed on nonaccrual status when principal or interest is past due for 90 days or more, unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in the legal process of collection. Secured loans may be charged-down to the estimated value of the collateral with previously accrued unpaid interest reversed. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects. Initial charge-off amounts are based on valuation estimates derived from appraisals, broker price opinions, or other market information. Generally, new appraisals are not received until the foreclosure process is completed; however, collateral values are evaluated periodically based on market information and incremental charge-offs are recorded if it is determined that collateral values have declined from their initial estimates.

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Management 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.

In general, collateral values for residential real estate have declined since 2006, with values being more stable over the last 24 months to 36 months. Loans originated from 2005 through 2007 have seen property values decline approximately 50 percent from their original appraised values, more than the decline on loans originated in other years. Declining residential collateral value has affected our actual loan losses over the last three years, but values appear to be stabilizing. Residential loans that become 90 days past due are placed on nonaccrual. A specific allowance is made for any loan that becomes 120 days past due. Residential loans are subsequently written down if they become 180 days past due and such write-downs are supported by a current appraisal, consistent with current banking regulations.

Our Loan Review unit is independent, and 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 Seacoast National’s board of directors.

Table 13 summarizes the Company’s allocation of the allowance for loan losses to real estate loans, commercial and financial loans, and installment loans to individuals, and information regarding the composition of the loan portfolio at the dates indicated.

Net charge-offs for the year ended December 31, 2011 totaled $14,153,000, compared to net charges-offs of $39,128,000 and $108,963,000 for the years ended December 31, 2010 and 2009, respectively (See “Table 12 –Summary of Loan Loss Experience” for detail on net charge-offs for the last five years). Some of the increase in charge-offs during 2010 was related to loan sales to reduce risk in the loan portfolio. Note F to the financial statements (titled “Impaired Loans and Allowance for Loan Losses) summarizes the Company’s allocation of the allowance for loan losses to construction and land development loans, commercial and residential estate loans, commercial and financial loans, and consumer loans, and provides more specific detail regarding charge-offs and recoveries for each loan component and the composition of the loan portfolio at December 31, 2011. Although there is no assurance that we will not have elevated charge-offs in the future, we believe that we have significantly reduced the risks in our loan portfolio and that with stabilizing market conditions, future charge-offs should decline.

The allowance as a percentage of loans outstanding was 2.12 percent at December 31, 2011, compared to 3.04 percent at December 31, 2010. 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. Prospectively, we anticipate that the allowance will continue to decline as a percentage of loans outstanding as we continue to see improvement in our credit quality, with some offset to this perspective for more normal loan growth as business activity and the economy improve.

Concentrations of credit risk, discussed under the caption “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 most significant concentration of credit is a portfolio of loans secured by real estate. At December 31, 2011, the Company had $1.104 billion in loans secured by real estate, representing 91.4 percent of total loans, down slightly from $1.140 billion, representing 91.9 percent at December 31, 2010. In addition, the Company is subject to a geographic concentration of credit because it only operates in central and southeastern Florida. The Company’s exposure to construction and land development credits is secured by project assets and personal guarantees and totaled $49.2 million at December 31, 2011 down from $79.3 million at December 31, 2010. The Company considers exposure to this industry group, together with an assessment of current trends and expected future financial performance in our evaluation of the adequacy of the allowance for loan losses. The significant decline in this concentration is one factor which supports the lower overall allowance for loan losses at December 31, 2011 compared to December 31, 2010.

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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, borrower payment behaviors and local market conditions as well as conditions affecting individual borrowers, management’s judgment of the allowance is necessarily approximate and imprecise. The allowance 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 assessment however the regulators could seek additional provisions to our allowance for loan losses, which will reduce our earnings.

Nonperforming Assets

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

Nonperforming assets (“NPAs”) at December 31, 2011 totaled $49,472,000 and are comprised of $28,526,000 of nonaccrual loans and $20,946,000 of other real estate owned (“OREO”), compared to $93,981,000 at December 31, 2010 (comprised of $68,284,000 in nonaccrual loans and $25,697,000 of OREO). At December 31, 2011, approximately 97.8 percent of nonaccrual loans were secured with real estate, the remainder principally by marine vessels (see the second table below for details about nonaccrual loans). At December 31, 2011, nonaccrual loans have been written down by approximately $12.2 million or 33.0 percent of the original loan balance (including specific impairment reserves). NPAs are subject to changes in the economy, both nationally and locally, changes in monetary and fiscal policies, changes in borrowers’ payment behaviors and changes in conditions affecting various borrowers from Seacoast National.

OREO has increased as problem loans migrated to foreclosure. Prospectively, the Company anticipates that write-downs and/or charge-offs related to OREO sales should be limited.

New nonperforming loans have declined during 2011, compared to 2010 and 2009. The table below shows nonperforming loan inflows by quarter for 2011, 2010 and 2009.

New Nonperforming Loans	2011		2010		2009
[(In thousands)]
First Quarter	$	11,349	$	11,895	$	37,170
Second Quarter		19,874		22,560		46,303
Third Quarter		4,137		8,151		75,295
Fourth Quarter		4,349		9,990		36,196

No loan sales occurred during 2011.The Company liquidated through foreclosure $28 million of nonperforming loans and $4 million of OREO properties during the second quarter of 2011 (including its largest land credit, reducing NPAs by $21 million for this single asset). For 2010, sales totaled $28 million at an average price of nearly 56 percent of the outstanding ledger balance. Because we have significantly reduced our non-performing loans over the last several years, we do not expect loan sales to play a significant role in connection with liquidation efforts.

The Company pursues loan restructurings in selected cases where it expects to realize better values than may be expected through traditional collection activities. The Company has worked with retail mortgage customers, when possible, to achieve lower payment structures in an effort to avoid foreclosure. Troubled debt

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restructurings (“TDRs”) are part of the Company’s loss mitigation activities and can include rate reductions, payment extensions and principal deferrals. Company policy requires TDRs be classified as nonaccrual loans until (under certain circumstances) performance can be verified, which usually requires six months of performance under the restructured loan terms. We are optimistic that some of these credits will rehabilitate and be upgraded in the coming year versus migrating to nonperforming or OREO prospectively. Accruing restructured loans totaled $71.6 million at December 31, 2011 compared to $66.4 million at December 31, 2010. The tables below set forth details related to nonaccrual and restructured loans.

	Nonaccrual Loans						Accruing Restructured Loans
December 31, 2011	Non- Current		Per- forming		Total
	(In thousands)
Construction & land development
Residential	$	1,095	$	33	$	1,128	$	2,411
Commercial		37		3		40		—
Individuals		502		557		1,059		755
		1,634		593		2,227		3,166
Residential real estate mortgages		7,594		4,961		12,555		22,713
Commercial real estate mortgages		8,492		4,628		13,120		45,180
Real estate loans		17,720		10,182		27,902		71,059
Commercial and financial		16		—		16		101
Consumer		119		489		608		451
	$	17,855	$	10,671	$	28,526	$	71,611

At December 31, 2011 and 2010, total TDRs (performing and nonperforming) were comprised of the following loans by type of modification:

	2011				2010
	Number		Amount		Number		Amount
	(Dollars in thousands)
Rate reduction		96	$	23,763		83	$	25,476
Maturity extended with change in terms		109		43,697		120		51,782
Forgiveness of principal		2		2,339		2		2,529
Payment structure changed to allow for interest only payments		4		1,845		2		1,253
Not elsewhere classified		17		12,751		12		6,806
		228	$	84,395		219	$	87,846

During 2011, newly identified TDRs totaled $31.2 million. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements. Accruing loans that were restructured within the twelve months ended December 31, 2011 and defaulted during the twelve months ended December 31, 2011 summed to $265,000. A restructured loan is considered in default when it becomes 90 days or more past due under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned.

At December 31, 2011, loans totaling $100,137,000 were considered impaired (comprised of total nonaccrual and TDRs) and $6,979,000 of the allowance for loan losses was allocated for potential losses on these loans, compared to $134,634,000 and $14,362,000, respectively, at December 31, 2010.

All impaired loans are reviewed quarterly to determine if valuation adjustments are necessary based on known changes in the market and/or the project assumptions. When necessary, the “As Is” appraised value may be adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation. If an updated assessment is deemed

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necessary and an internal valuation cannot be made, an external “As Is” appraisal will be obtained. If the “As Is” appraisal does not appropriately reflect the current fair market value, in the Company’s opinion, a specific reserve is established and/or the loan is written down to the current fair market value.

Collateral dependent, impaired loans are loans that are solely dependent on the liquidation of the collateral for repayment. All other real estate owned (“OREO”) and repossessed assets (“REPO”) are reviewed quarterly to determine if valuation adjustments are necessary based on known changes in the market and/or project assumptions. When necessary, the “As Is” appraisal is adjusted based on more recent appraisal assumptions received by the Company on other similar properties, the tax assessed market value, comparative sales and/or an internal valuation is performed. If an updated assessment is deemed necessary, and an internal valuation cannot be made, an external appraisal will be requested. Upon receipt of the “As Is” appraisal a charge-off is recognized for the difference between the loan amount and its current fair market value.

“As Is” values are used to measure fair market value on impaired loans, OREO and REPOs.

Any loan that is partially charged-off remains in nonperforming status until it is paid off regardless of current valuation of the loan.

In accordance with regulatory reporting requirements, loans are placed on non-accrual following the Retail Classification of Loan interagency guidance. Typically loans 90 days or more past due are reviewed for impairment, and if deemed impaired, are placed on non-accrual. Once impaired, the current fair market value of the collateral is assessed and a specific reserve and/or charge-off taken. Quarterly thereafter, the loan carrying value is analyzed and any changes are appropriately made as described above.

Upon receipt of an appraisal, an appraisal review is performed and a specific reserve or charge-off is processed, if warranted.

Fair Value and Other than Temporary Impairment of Securities

At December 31, 2011, outstanding securities designated as available for sale totaled $648,362,000. The fair value of the available for sale portfolio at December 31, 2011 was more than historical amortized cost, producing net unrealized gains of $8,515,000 that have been included in other comprehensive income (loss) as a component of shareholders’ equity (net of taxes). The Company made no change to the valuation techniques used to determine the fair values of securities during 2011 and 2010. The fair value of each security available for sale was obtained from independent pricing sources utilized by many financial institutions. Generally, the Company obtains one price for each security. However, actual values can only be determined in an arms-length transaction between a willing buyer and seller that 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 securities holdings are primarily investment grade. Any securities rated below investment grade are tested for other than temporary impairment, or “OTTI”. As of December 31, 2011, the Company’s investment securities, except for approximately $7.8 million of securities issued by states and their political subdivisions, generally are traded in liquid markets. U.S. Treasury and U.S. Government agency obligations totaled $575.2 million, or 89 percent of the total available for sale portfolio. The remainder of the portfolio primarily consists of private label securities secured by collateral originated in 2005 or prior with low loan to values, and current FICO scores above 700. Generally these securities have credit support exceeding 5%. The collateral underlying these mortgage investments are primarily 30- and 15-year fixed rate and 5/1 and 10/1 adjustable rate mortgage loans. Historically, the mortgage loans serving as collateral for those investments have had minimal foreclosures and losses.

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Our investments are reviewed quarterly for other than temporary impairment, by considering the following primary factors: percent decline in fair value, rating downgrades, subordination, duration, amortized loan-to-value, and the ability of the issuers to pay all amounts due in accordance with the contractual terms. Prices obtained from pricing services are usually not adjusted. Based on our internal review procedures and the fair values provided by the pricing services, we believe that the fair values provided by the pricing services are consistent with the principles of ASC 820, Fair Value Measurement. However, on occasion pricing provided by the pricing services may not be consistent with other observed prices in the market for similar securities. Using observable market factors, including interest rate and yield curves, volatilities, prepayment speeds, loss severities and default rates, the Company may at times validate the observed prices using a discounted cash flow model and using the observed prices for similar securities to determine the fair value of its securities.

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 its securities portfolio, reduces the risk that losses would be realized as a result of a need to sell securities to obtain liquidity.

The Company also held stock in the Federal Home Loan Bank of Atlanta (“FHLB”) totaling $5.6 million as of December 31, 2011, $0.8 million lower than at year-end 2010. The Company accounts for its FHLB stock based on the industry guidance in ASC 942, Financial Services—Depository and Lending, which requires the investment to be carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We evaluated our holdings in FHLB stock at December 31, 2011 and believe our holdings in the stock are ultimately recoverable at par. We do not have operational or liquidity needs that would require redemption of the FHLB stock in the foreseeable future and, therefore, have determined that the stock is not other-than-temporarily impaired.

Realization of Deferred Tax Assets

At December 31, 2011, the Company had net deferred tax assets (“DTA”) of $16.8 million. Although realization is not assured, management believes that realization of the DTA is more likely than not, based upon expectations as to future taxable income and tax planning strategies, as defined by [ASC] 740 Income Taxes. In comparison, at December 31, 2010 the Company had net DTAs of $18.9 million.

As a result of the losses incurred in 2008, 2009, and 2010 the Company was and is in a three-year cumulative pretax loss position. The Company has recorded deferred tax valuation allowances for its DTAs, primarily net operating loss (“NOL”) carryforwards totaling approximately $45 million at December 31, 2011. Should the economy show improvement and the Company’s credit losses continue to moderate prospectively as the Company continues to generate taxable income, increased reliance on management’s forecast of future taxable earnings could result in realization of additional future tax benefits from the net operating loss carryforwards. We believe our future taxable income will ultimately allow for the recovery of the NOL, and the realization of its DTA.

Contingent Liabilities

The Company is subject to contingent liabilities, including judicial, regulatory and arbitration proceedings, and 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 that the Company will incur an expense and the amount can be reasonably estimated. Company management, together with attorneys, consultants and other professionals, assesses the probability and estimated 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 the claims. At December 30, 2011 and 2010, the Company had no significant accruals for contingent liabilities and had no known pending matters that could potentially be significant.

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Results of Operations

Earnings Summary

Net income available to common shareholders for 2011 totaled $2,919,000 or $0.03 per average common diluted share, compared to 2010’s net loss of $36,951,000 or $0.48 per average common diluted share and 2009’s net loss of $150,434,000 or $4.74 per average common diluted share. The improved performance for 2011 reflects lower credit costs, primarily through lower provisioning for loan losses.

Net Interest Income

Net interest income (on a fully taxable equivalent basis) for 2011 totaled $67,059,000, increasing by $574,000 or 0.9 percent as compared to 2010. The following table details net interest income and margin results (on a tax equivalent basis) for the past five quarters:

	Net Interest Income (tax  equivalent)		Net Interest Margin (tax  equivalent)
	(Dollars in thousands)
Fourth quarter 2010	$	16,379		3.42
First quarter 2011		16,518		3.48
Second quarter 2011		16,596		3.36
Third quarter 2011		16,925		3.44
Fourth quarter 2011		17,020		3.42

Fully taxable equivalent net interest income is a common term and measure used in the banking industry but is not a term used under generally accepted accounting principles (“GAAP”). We believe that these presentations of tax-equivalent net interest income and tax equivalent net interest margin aid in the comparability of net interest income arising from both taxable and tax-exempt sources over the periods presented. We further believe these non-GAAP measures enhance investors’ understanding of the Company’s business and performance, and facilitate an understanding of performance trends and comparisons with the performance of other financial institutions. The limitations associated with these measures are the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently, including as a result of using different assumed tax rates. These disclosures should not be considered an alternative to GAAP. The following information is provided to reconcile GAAP measures and tax equivalent net interest income and net interest margin on a tax equivalent basis.

	Total Year 2011			Fourth Quarter 2011			Third Quarter 2011			Second Quarter 2011			First Quarter 2011			Total Year 2010			Fourth Quarter 2010
	(Dollars in thousands)
Non-taxable interest income	$	424		$	87		$	109		$	109		$	119		$	533		$	112
Tax Rate		35	%		35	%		35	%		35	%		35	%		35	%		35	%
Net interest income (TE)	$	67,059		$	17,020		$	16,925		$	16,596		$	16,518		$	66,485		$	16,379
Total net interest income (not TE)		66,839			16,974			16,868			16,541			16,456			66,212			16,321
Net interest margin (TE)		3.42	%		3.42	%		3.44	%		3.36	%		3.48	%		3.37	%		3.42	%
Net interest margin (not TE)		3.41			3.41			3.43			3.35			3.47			3.35			3.41

Our net interest income and net interest margin (on a tax equivalent basis) have stabilized despite the challenging lending environment and the reduction of interest due to nonaccrual loans. Net interest margin on a tax equivalent basis for 2011 increased 5 basis points to 3.42 percent for 2011 compared to [3.37 percent in] 2010. The level of nonaccrual loans and changes in the earning assets mix have been the primary forces adversely affecting net interest income and net interest margin results for each of the last three years (see “Table 14 - Nonperforming Assets”).

The earning asset mix changed year over year impacting net interest income. For 2011, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 62.1 percent, compared to 67.2 percent a year ago. Average securities as a percentage of average earning assets increased from

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21.2 percent a year ago to 29.6 percent during 2011 and interest bearing deposits and other investments decreased to 8.3 percent in 2011 from 11.6 percent in 2010. In addition to decreasing average total loans as a percentage of earning assets, the mix of loans changed, with volumes related to commercial real estate representing 43.9 percent of total loans at December 31, 2011 (compared to 47.7 percent at December 31, 2010). This decrease reflects our reduced exposure to commercial construction and land development loans on residential and commercial properties, which declined by $2.8 million and $22.4 million, respectively, from December 31, 2010 to December 31, 2011. Lower yielding residential loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 47.4 percent of total loans at December 31, 2011 (versus 44.2 percent at December 31, 2010) (see “Loan Portfolio”).

The yield on earning assets for 2011 was 4.14 percent, 16 basis points lower than for 2010, a reflection of the lower interest rate environment and earning asset mix. The following table details the yield on earning assets (on a tax equivalent basis) for the past five quarters:

	4th Quarter 2011			3rd Quarter 2011			2nd Quarter 2011			1st Quarter 2011			4th Quarter 2010
Yield		4.04	%		4.13	%		4.12	%		4.26	%		4.24	%

The yield on loans decreased 11 basis points to 5.14 percent over the last twelve months with nonaccrual loans totaling $28.5 million or 2.4 percent of total loans at December 31, 2011 (versus $68.3 million or 5.5 percent of total loans at December 31, 2010) and has more recently aided in improving the yield on our loan portfolio. The yield on investment securities was lower, decreasing 35 basis points year over year to 3.06 percent for 2011, due primarily to purchases of securities at lower yields available in current markets, which diluted the overall portfolio yield year over year. The dilution in yield on investment securities was less severe in the fourth quarter than over the past two quarters, with a decline of 22 basis points for fourth quarter 2011’s yield year over year, compared to a decline of 31 basis points for the third quarter 2011 year over year a decline of 35 basis points for second quarter 2011 year over year, and a decline of 56 basis points for the first quarter of 2011 year over year. Interest bearing deposits and other investments yielded 0.49 percent for 2011, compared to a yield of 0.43 percent for 2010. Although we are seeing heightened competition among lenders in the Company’s markets for quality borrowers, particularly in the form of pricing pressure from the larger banks, we remain focused on offsetting pricing pressures with deposit product offerings and other fee opportunities from the entire relationship.

Average earning assets for 2011 decreased $16.2 million or 0.8 percent compared to 2010’s average balance. Average loan balances for 2011 decreased $110.9 million or 8.4 percent to $1,216.2 million, while average investment securities increased $161.2 million or 38.6 percent to $578.8 million and average interest bearing deposits and other investments decreased $66.5 million or 28.9 percent to $163.4 million.

Commercial and commercial real estate loan production for 2011 totaled approximately $63 million, compared to production for 2010 of $10 million. Improvements in commercial production resulted from a focused program to target small business segments less impacted by the lingering effects of the recession. While commercial production increased, period-end total loans outstanding have declined by $32.5 million or 2.6 percent since December 31, 2010. In comparison, the decline in loans was more severe a year ago, decreasing by $156.9 million or 11.2 percent at December 31, 2010 year over year. Economic conditions in the markets the Company serves have continued to be challenging, but possibly to a lesser degree if conditions continue to improve in 2012. Our strategy has been to focus on hiring commercial lenders for the larger metropolitan markets in which the Company competes, principally Orlando and Palm Beach. At December 31, 2011 the Company’s total commercial and commercial real estate loan pipeline was $36 million, versus $28 million at December 31, 2010.

A total of 17, 20, 14 and 16 applications were received seeking restructured residential mortgages during the first, second, third and fourth quarters of 2011, respectively, compared to 37, 28, 15 and 21 applications in the first, second, third and fourth quarters of 2010, respectively. The Company continues to lend, and we have

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expanded our residential mortgage loan originations and will seek to expand loans to small businesses in 2012. However, as consumers and businesses seek to reduce their borrowings, and the economy remains weak, opportunities to lend prudently to creditworthy borrowers are expected to remain a challenge.

Closed residential mortgage loan production for the first, second, third and fourth quarters of 2011 totaled $32 million, $50 million, $53 million and $56 million, respectively, of which $13 million, $18 million, $17 million and $21 million was sold servicing-released. In comparison, closed residential mortgage loan production for the first, second, third and fourth quarters of 2010 totaled $33 million, $33 million, $38 million and $49 million, respectively, of which $17 million, $26 million, $29 million and $28 million was sold servicing-released, respectively. Applications for residential mortgages totaled $80 million, $67 million, $95 million and $70 million, respectively, during the first, second, third and fourth quarters of 2011, compared to $55 million, $55 million, $76 million and $58 million during the same periods in 2010, resulting in a total of $312 million in applications for 2011 versus $244 million for 2010. Existing home sales and home mortgage loan refinancing activity in the Company’s markets have increased, but demand for new home construction is expected to remain soft during 2012. While the slowdown in foreclosure activity by some of the Company’s larger competitors has had a favorable impact on housing inventory in the Company’s markets, resulting in improved sales activity, property valuations continue to remain under pressure. Rents for housing have been running 15-20 percent greater than the cost to own, depending on the Florida market you look at, which may portend better stability and pricing and continued growth, hopefully enough that any additional foreclosure activity in our markets can be absorbed. Our expectation is that it will likely take a couple more years for the residential market in Florida to completely stabilize.

Sales of securities were more limited in 2011, with proceeds in sales during the third and fourth quarters of 2011 summing to $31.4 million and $19.1 million, respectively, with net gains of $137,000 and $1,083,000 realized. In comparison, during the first, second and third quarters of 2010, proceeds from the sale of mortgage backed securities totaling $59.2 million, $27.9 million and $20.5 million, respectively, resulted in securities gains of $2,100,000, $1,377,000 and $210,000, respectively. Securities purchases in 2011 and 2010 have been conducted principally to reinvest funds from maturities and loan principal repayments, as well as to reinvest excess funds (an interest bearing deposit) at the Federal Reserve Bank and proceeds from sales. During 2011, maturities (principally pay-downs of $120.7 million) totaled $125.5 million and securities portfolio purchases totaled $380.8 million. In comparison, 2010 maturities totaled $141.9 million (including $136.0 million in pay-downs) and securities portfolio purchases totaled $298.2 million. Management believed the securities sold had minimal opportunity to further increase in value.

For 2011, the cost of average interest-bearing liabilities decreased 24 basis points to 0.89 percent from 2010, reflecting the lower interest rate environment and improved deposit mix. The following table details the cost of average interest bearing liabilities for the past five quarters:

	4th Quarter 2011			3rd Quarter 2011			2nd Quarter 2011			1st Quarter 2011			4th Quarter 2010
Rate		0.77	%		0.87	%		0.95	%		0.98	%		1.01	%

During 2011, the Company’s retail core deposit focus continued to produce strong growth in core deposit customer relationships when compared to prior year results. The improved deposit mix and lower rates paid on interest bearing deposits during 2011 (and last several quarters) reduced the overall cost of total deposits to 0.56 percent for the fourth quarter of 2011, 20 basis points lower than the same quarter a year ago. A significant component favorably affecting the Company’s net interest margin, the average balances of lower cost interest bearing deposits (NOW, savings and money market) totaled 62.1 percent of total average interest bearing deposits for 2011, an improvement compared to the average of 59.7 percent a year ago. The average rate for lower cost interest bearing deposits for 2011 was 0.28 percent, down by 18 basis points from 2010’s rate. Certificate of deposit (“CD”) rates paid were also lower during 2011, averaging 1.68 percent, a 29 basis point decrease compared to 2010. Average CDs (the highest cost component of interest bearing deposits) were 37.9 percent of interest bearing deposits for 2011, compared to 40.3 percent for 2010.

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Average deposits totaled $1,677.6 million during 2011, and were $28.8 million lower compared to 2010, due primarily to a planned reduction of brokered deposits and single service time deposit customers. Average aggregate amounts for NOW, savings and money market balances decreased $11.1 million or 1.3 percent to $841.8 million for 2011 compared to 2010, noninterest bearing deposits increased $45.3 million or 16.3 percent to $323.0 million for 2011 compared to 2010, and average CDs decreased by $63.0 million or 10.9 percent to $512.8 million over the same period. With the low interest rate environment and lower CD rate offerings available, customers have been more complacent and are leaving more funds in lower cost average balances in savings and other liquid deposit products that pay no interest or a lower interest rate. Average deposits in the Certificate of Deposit Registry program (“CDARs”), a program that began in mid-2008 and allows customers to have CDs safely insured beyond the Federal Deposit Insurance Corporation (“FDIC”) deposit insurance limit, have declined $2.2 million from a year ago to $5.5 million for 2011. The CDARs product continues to be a favored offering for homeowners’ associations concerned with FDIC insurance coverage.

Average short-term borrowings have been principally comprised of sweep repurchase agreements with customers of Seacoast National, which increased $19.4 million to $106.5 million or 22.3 percent in 2011 as compared to 2010. With balances typically peaking during the fourth and first quarters each year, public fund clients with larger balances have the most significant influence on average sweep repurchase agreement balances outstanding during the year. During 2011, 2010 and 2009, we did not utilize any federal funds purchased. Other borrowings are comprised of subordinated debt of $53.6 million related to trust preferred securities issued by trusts organized by the Company, and advances from the Federal Home Loan Bank (“FHLB”) of $50.0 million. No changes have occurred to other borrowings since year-end 2009 (see “Note I – Borrowings” to the Company’s consolidated financial statements).

Company management believes its market expansion, branding efforts and retail deposit growth strategies have produced new relationships and core deposits, which have assisted in maintaining a stable net interest margin. Reductions in nonperforming assets also are expected to be accretive to the Company’s future net interest margin.

Net interest income (on a fully taxable equivalent basis) for 2010 totaled $66,485,000, decreasing from 2009’s result by $7,362,000 or approximately 10.0 percent. Net interest margin on a tax equivalent basis declined 18 basis points to 3.37 percent in 2010, as compared to 2009. Nonaccrual loans and earning asset mix changes were the primary forces that adversely affected net interest income and net interest margin when comparing 2010 to 2009.

The earning asset mix changed in 2010 from 2009. For 2010, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 67.2 percent, compared to 76.3 percent in 2009. Average securities as a percentage of average earning assets increased from 17.4 percent in 2009 to 21.2 percent during 2010 and interest bearing deposits and other investments increased to 11.6 percent in 2010 from 6.3 percent in 2009. In addition to decreasing average total loans as a percentage of earning assets, the mix of loans changed, with commercial and commercial real estate volumes representing 51.6 percent of total loans at December 31, 2010 (compared to 55.1 percent at December 31, 2009). This reflected our reduced exposure to commercial construction and land development loans on residential and commercial properties, which declined by $33.6 million and $43.7 million, respectively, from December 31, 2009 to December 31, 2010. Lower yielding residential loan balances with individuals (including home equity loans and lines, and personal construction loans) represented 44.2 percent of total loans at December 31, 2010 (versus 40.3 percent at year-end 2009).

The yield on earning assets for 2010 was 4.30 percent, 62 basis points lower than for 2009, a reflection of the lower interest rate environment and earning asset mix. The yield on loans decreased 10 basis points to 5.25 percent during 2010, with nonaccrual loans totaling $68.3 million or 5.5 percent of total loans at December 31, 2010 (versus $97.9 million or 7.0 percent of total loans at December 31, 2009). The yield on investment securities was also lower, decreasing 122 basis points year over year to 3.41 percent for 2010, due primarily to purchases of securities at lower yields available in current markets, which diluted the overall portfolio yield year

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over year. Interest bearing deposits and other investments yielded 0.43 percent for 2010, below 2009’s yield of 0.51 percent. The Company had approximately $100 million of excess cash liquidity at year-end 2010 to invest in securities or loans.

Average earning assets for 2010 decreased $106.9 million or 5.1 percent compared to 2009’s average balance. Average loan balances decreased $260.2 million or 16.4 percent to $1,327.1 million, while average investment securities were $54.2 million or 14.9 percent higher totaling $417.6 million and average interest bearing deposits and other investments increased $99.1 million or 75.7 percent to $229.9 million. The decline in average earning assets was consistent with reduced funding as a result of a planned reduction of brokered deposits (only $7.1 million remained outstanding at December 31, 2010), the maturity of a $15.0 million advance from the FHLB in November 2009, and lower sweep repurchase arrangements (declining $30.1 million from 2009, principally in public funds as a result of lower tax receipts).

Applications for residential mortgages totaled $244 million during 2010, compared to $268 million for 2009. Existing home sales and home mortgage loan refinancing activity in the Company’s markets increased during 2010, but demand for new home construction remained soft.

For 2010, the cost of average interest-bearing liabilities decreased 52 basis points to 1.13 percent from 2009, reflecting the lower interest rate environment and improved deposit mix. During 2010, the Company’s retail core deposit focus continued to produce strong growth in core deposit customer relationships when compared to prior year results, and resulted in increased balances which offset most of the planned certificate of deposit runoff during 2010. The improved deposit mix and lower rates paid on interest bearing deposits during 2010 reduced the overall cost of interest bearing deposits to 1.07 percent. A significant component favorably affecting the Company’s net interest margin, the average balances of lower cost interest bearing deposits (NOW, savings and money market) totaled 59.7 percent of total average interest bearing deposits for 2010, an improvement compared to the average of 53.3 percent for 2009. The average rate for lower cost interest bearing deposits for 2010 was 0.46 percent, down by 29 basis points from 2009’s rate. CD rates paid were also lower in 2010, averaging 1.97 percent, a 70 basis point decrease compared to 2009. Average CDs (the highest cost component of interest bearing deposits) were 40.3 percent of interest bearing deposits for 2010, compared to 46.7 percent for 2009.

Average deposits totaled $1,706.4 million during 2010, and were $72.6 million lower compared to 2009, due primarily to a planned reduction of brokered deposits and single service time deposit customers. Total average sweep repurchase agreements for 2010 were $30.1 million lower versus 2009, a result of public fund customers maintaining larger balances in repurchase agreements during 2009. Average aggregate amounts for NOW, savings and money market balances increased $51.4 million or 6.4 percent to $852.8 million for 2010 compared to 2009, noninterest bearing deposits increased $1.3 million or 0.5 percent to $277.8 million for 2010 compared to 2009, and average CDs decreased by $125.3 million or 17.9 percent to $575.8 million over the same period. As in 2011, with the low interest rate environment and lower CD rate offerings available, customers left more funds in lower cost savings and other liquid deposit products that pay no interest or a lower interest rate than in 2010. Average deposits in the CDARs program declined $8.0 million from 2009, and totaled $7.7 million for 2010. The higher balance during 2009 reflected the deposit retention efforts that occurred during the financial market disruption and emphasis on safety at that time.

Average short-term borrowings comprised principally of sweep repurchase agreements with customers of Seacoast National, decreased $30.1 million to $87.1 million for 2010, or 25.7 percent from 2009. Public fund clients with larger balances had the most significant influence on the average balance outstanding during 2010.

Noninterest Income

Noninterest income, excluding gains or losses from securities, totaled $18,345,000 for 2011, $211,000 or 1.2 percent higher than for 2010. For 2010, noninterest income of $18,134,000 was $639,000 or 3.7 percent higher than for 2009. Noninterest income accounted for 21.5 percent of total revenue (net interest income plus noninterest income, excluding securities gains or losses) in 2011, compared to 21.5 percent a year ago and 19.2 percent in 2009.

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Table 6 provides detail regarding noninterest income components for the past three years.

For 2011, revenues from the Company’s wealth management services businesses (trust and brokerage) increased year over year, by $82,000 or 2.6 percent, and were lower in 2010 than for 2009 by $363,000 or 10.3 percent. The $82,000 increase in revenues for 2011 resulted from trust revenue increasing by $134,000 or 6.8 percent and brokerage commissions and fees decreasing by $52,000 or 4.4 percent. Economic uncertainty is the primary issue affecting clients of the Company’s wealth management services. It is expected that fees from wealth management will continue to improve as the economy and stock market improve. Higher inter vivos and estate trust fees were the primary cause for the higher trust income versus 2010, as these fees increased $47,000 and $83,000, respectively. The $52,000 overall decline in brokerage commissions and fees for 2011 included a decrease of $90,000 in aggregate brokerage and mutual fund commissions, partially offset by an increase of $51,000 in annuity income. Of the $363,000 decrease for 2010, trust revenue was lower by $121,000 or 5.8 percent and brokerage commissions and fees were lower by $242,000 or 17.1 percent.

Service charges on deposits for 2011 were $337,000 or 5.7 percent higher year over year versus 2010’s result, and were $566,000 or 8.7 percent lower in 2010 year over year versus 2009. Overdraft income was the primary cause for the decline in overall service charges in 2010 compared to 2009, declining $444,000. For 2011, overdraft fees increased $273,000 and represented approximately 76 percent of total service charges on deposits, identical to the percentage averaged for both 2010 and 2009. We are pleased with this result considering that all financial institutions adopted procedures beginning on July 1, 2010, which were expected to have a negative impact on overdraft fee income. Remaining service charges on deposits increased $64,000 or 4.5 percent to $1,491,000 for 2011, compared to 2010. Service charge increases during 2011 reflect the growth in core deposit households.

For 2011, fees from the non-recourse sale of marine loans originated by our Seacoast Marine Division of Seacoast National decreased $125,000 or 9.4 percent compared to 2010, but were $181,000 or 15.7 percent higher in 2010 compared to 2009. The Seacoast Marine Division originated $23 million, $21 million, $18 million and $21 million in loans during the first, second, third and fourth quarters of 2011, respectively, (a total of $83 million for 2011), compared to $25 million, $17 million, $17 million and $20 million in loans during the first, second, third and fourth quarters of 2010, respectively, (a total of $79 million for 2010). Of the loans originated during the first, second, third and fourth quarters of 2011, $18 million, $19 million, $10 million, and $21 million were sold (81.9 percent of production for 2011), compared to $20 million, $17 million, $17 million and $20 million sold during 2010 (or 93.7 percent of production for 2010). For 2009, production totaled $70 million, of which 97.1 percent was sold. Approximately $5 million, $2 million and $8 million of 2011’s first, second and third quarter’s marine loan production, respectively, was placed in our loan portfolio, thereby reducing the percentage of production sold during 2011. Production levels have been significantly lower since the end of 2008 and are reflective of the general economic downturn. Lower attendance at boat shows by consumers, manufacturers, and marine retailers over the past several years has resulted in lower marine sales and loan volumes. The Seacoast Marine Division is headquartered in Ft. Lauderdale, Florida with lending professionals in Florida, California, Washington and Oregon.

Greater usage of check or debit cards over recent years by core deposit customers and an increased cardholder base has increased our interchange income. For 2011, interchange income increased $645,000 or 20.4 percent from 2010, and was $550,000 or 21.0 percent higher for 2010, compared to 2009’s income. Other deposit-based electronic funds transfer (“EFT”) income decreased nominally, by $3,000 or 0.9 percent in 2011 compared to 2010, after decreasing $10,000 or 3.0 percent in 2010 compared to 2009’s revenue. Interchange revenue is dependent upon business volumes transacted, as well as the fees permitted by VISA^® and MasterCard^®. At present, the Dodd-Frank Act regulation is not expected to impact this source of fee revenue for Seacoast National materially, but is expected to significantly reduce fees collected by larger financial institutions that may in turn affect Seacoast National unfavorably as markets adjust to this legislative change.

The Company originates residential mortgage loans in its markets, with loans processed by commissioned employees of Seacoast National. Many of these mortgage loans are referred by the Company’s branch personnel. Mortgage banking fees in 2011 increased $21,000 or 1.0 percent from 2010, and were $373,000 or 21.4 percent higher for 2010 than for 2009. A seasonal slowing on home purchase transactions in early 2011 improved during

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the second, third and fourth quarters of 2011, with more customer activity related to mortgage lending as a result of mortgage interest rates declining further. Mortgage banking revenue as a component of overall noninterest income was 11.7 percent for 2011, compared to 11.7 percent for 2010 and 10.0 percent for 2009. Mortgage revenues are dependent upon favorable interest rates, as well as good overall economic conditions, including the volume of new and used home sales. We are beginning to see some signs of stability for residential real estate sales and activity in our markets, with transactions increasing, prices firming and affordability improving. The Company had more mortgage loan origination opportunities in markets it serves during 2010 and 2011 and this is expected to continue during 2012. The Company also offers FHA loans, a product not offered prior to second quarter 2009. The Company increased production in 2010 and 2011 by increasing its market share and the Company was the number one originator of home purchase mortgages in Martin, St. Lucie and Indian River counties. The Company has only had to repurchase five sold mortgage loans ever and believes that its processes and controls make it unlikely that it will have any material exposure in the future.

Other income for 2011 decreased $746,000 or 35.2 percent compared to a year ago, and for 2010 increased $515,000 or 36.7 percent compared to 2009’s result. Fourth quarter 2010 included a $600,000 gain on the sale of our merchant portfolio. As a result of the merchant portfolio sale, Seacoast National receives fee income for new accounts opened prospectively and has more competitive offerings for current and new customers. Included in the decline for 2011, were losses from an investment in a partnership supporting Community Reinvestment Act activities, in which Seacoast National owns approximately a 1 percent interest, which were $74,000 higher than a year ago. Partially offsetting the merchant income sale for 2010, operating income from check charges and letter of credit fees declined from 2009 by $51,000 and $11,000, respectively, and most other line items in other income were slightly lower, including wire transfer fees, income from sales of cashier’s checks and money orders, and miscellaneous other fees.

Noninterest Expenses

The Company's overhead ratio, has typically been in the low 60 percent range in years prior to 2008. However, lower earnings in 2011, 2010, and 2009 resulted in this ratio increasing to 90.1 percent, 104.6 percent and 86.7 percent, respectively. When compared to 2010, total noninterest expenses for 2011 decreased by $11,793,000 or 13.2 percent to $77,763,000, and when comparing 2010 to 2009, total noninterest expenses decreased $40,671,000 or 31.2 percent to $89,556,000. Noninterest expenses for 2009 included a write-down of goodwill of $49,813,000. Without the impact of this write-down of goodwill, noninterest expenses for 2010 were $9,142,000 or 11.4 percent higher than 2009. The primary cause for the decrease in 2011 over 2010 was lower legal and professional fees, and decreased net losses on OREO and repossessed assets and asset disposition costs (aggregated), down by $1,840,000 and $9,777,000, respectively, versus a year ago. The primary cause for the increase in 2010 over 2009 (when excluding the goodwill write-down) was higher net losses on OREO and repossessed assets and asset disposition costs (aggregated) of $9,482,000. Noninterest expenses for 2009 also included a special assessment imposed by the FDIC in the second quarter totaling $976,000, and deposit insurance premiums that were $1,948,000 higher due to the FDIC’s deposit insurance premium rates more than doubling. The FDIC’s assessment methodology was reformulated beginning in the second quarter of 2011, which benefited the Company, with a reduction of $945,000 in FDIC costs compared to 2010.

Noninterest expenses for 2011 have been in line with our expectations. Table 7 provides detail of noninterest expense components for the years ending December 31, 2011, 2010 and 2009.

Salaries, wages and benefits were $1,038,000 or 3.2 percent higher for 2011 compared to 2010, and were $677,000 or 2.1 percent lower for 2010 compared to the same period in 2009. For 2011, 2010, and 2009, bonus compensation for most positions was eliminated as well as profit sharing contributions for all associates and reductions in matching contributions associated with salary savings plans. Excluding one-time severance payments of $469,000 and $338,000 for the years 2011 and 2010, respectively, the increase in salaries, wages and benefits was 2.8 percent for 2011, compared to 2010. Executive cash incentive compensation was not paid in 2011, 2010 or 2009.

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Salaries and wages for 2011 increased $880,000 or 3.3 percent to $27,288,000 when compared to the prior year, and for 2010 decreased $285,000 or 1.1 percent to $26,408,000 compared to 2009. Commission and incentive payments on revenues generated from wealth management and lending production were higher for 2011, up by $901,000 or 51.1 percent compared to 2010. Base salaries for 2011 were $249,000 or 1.0 percent higher year over year compared to 2010, with 420 full time equivalent employees (“FTE’s”) employed at December 31, 2011. Severance, overtime and temporary services (in aggregate) during 2011 were $118,000 higher than in 2010, and stock awards issued to all employees of Seacoast National in August 2011 were the primary contributor to a $94,000 increase in stock compensation. For 2010, severance was $243,000 lower than for 2009.

As a recipient of funding from the U.S. Treasury’s TARP CPP, the Company is subject to various limitations on senior executive officers’ compensation pursuant the U.S. Treasury’s standards for executive compensation and corporate governance for the period during which the U.S. Treasury holds our equity securities issued pursuant to the TARP CPP, including our Series A Preferred Stock and common stock which may be issued pursuant to the Warrant we issued to the U.S. 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 (see “The TARP CPP and the ARRA impose, and other proposed rules may impose additional, executive compensation and corporate governance requirements that may adversely affect us and our business, including our ability to recruit and retain qualified employees” under “Item 1A. Risk Factors” in the Company’s Form 10-K filed with the SEC for the year ended December 31, 2011).

In 2011, employee benefits costs increased by $158,000 or 2.8 percent to $5,875,000 from a year ago, and were lower by $392,000 or 6.4 percent for 2010 when compared to 2009. The Company recognized a nominal change in claims experience during 2011 for its self-funded health care plan compared to 2010, with a decrease of $14,000 in expenditures. Also reduced, 401K costs were $12,000 lower for 2011 versus a year ago. More than offsetting these reductions, payroll taxes and unemployment compensation costs were $79,000 and $105,000 higher, respectively, year over year for 2011. During 2011 and 2010, the state of Florida increased unemployment compensation rates to replenish funding pools for disbursements. For 2010, the Company recognized lower claims experience for its self-funded health care plan compared to 2009, with a decrease of $397,000 in expenditures. In addition, 401K costs were $43,000 lower for 2010 versus 2009 and payroll taxes decreased by $28,000, reflecting lower FTEs for 2010. Partially offsetting these reductions, in 2010 unemployment compensation costs were $76,000 higher year over year versus 2009. The Company has met with its self-funded plan provider and discussed possible impacts of U.S. Health Care Reform and determined that no immediate or material financial statement impacts are apparent.

Outsourced data processing costs totaled $6,583,000 for 2011, an increase of $602,000 or 10.1 percent from a year ago. In comparison, for 2010 outsourced data processing costs increased of $358,000 or 6.4 percent from 2009’s result. Seacoast National utilizes third parties for its core data processing systems. Outsourced data processing costs are directly related to the number of transactions processed. Core data processing, software licensing, interchange processing, and other electronic funds transfer related costs were $377,000, $134,000, $70,000 and $55,000 higher, respectively for 2011, versus 2010. Partially offsetting this increase, software maintenance contracts were $33,000 lower for 2011. For 2010, core data processing and interchange processing costs were $285,000 and $48,000 higher, respectively, than in 2009. 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, decreased by $326,000 or 21.7 percent to $1,179,000 for 2011 when compared to 2010, and for 2010 were $330,000 or 18.0 percent lower than for 2009. Improved systems and monitoring of services utilized as well as reducing the number telephone lines has reduced our communication costs, and these costs should continue to be lower prospectively.

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Total occupancy, furniture and equipment expenses for 2011 increased nominally year over year by $40,000 or 0.4 percent to $9,918,000, versus 2010. For 2010, these costs were $1,031,000 or 9.5 percent lower compared to 2009. Included in 2011 were maintenance, repair and upkeep costs that increased $45,000 from a year ago, lease payments for bank premises that were higher by $56,000, rental income (a contra-expense item) that was $94,000 less for 2011 (due to higher vacancies), equipment purchases of $75,000 that were incremental year over year and not amortizable as fixed assets, and write-offs of obsolete furniture and equipment of $89,000. Partially offsetting the increase, depreciation and real estate and tangible personal property taxes (aggregated) on bank owned property were lower for 2011, declining $268,000 and $67,000, respectively, from 2010. Our costs in 2010 generally decreased, primarily due to branch consolidations and closures. Included in the $1,031,000 decrease during 2010 were lease payments for bank premises decreasing $292,000, and lower depreciation, utility costs (power, lights and water) and real estate taxes, declining $386,000, $181,000 and $174,000, respectively. Office relocation costs were lower as well, by $28,000 during 2010 compared to 2009.

For 2011, marketing expenses, including 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, increased nominally by $7,000 or 0.2 percent to $2,917,000 when compared to 2010. For 2010, marketing expenses increased by $843,000 or 40.8 percent to $2,910,000 when compared to 2009. Marketing expenses for 2011 and 2010 reflect a focused campaign in our markets targeting the customers of competing financial institutions and promoting our brand. Agency fees, media costs (newspaper, television and radio advertising), sales promotions, donations (and sponsorships), public relations costs, and business meals and entertainment were ramped up the most during 2011, increasing $212,000, $36,000, $42,000, 185,000, $36,000 and $98,000, respectively, year over year. Partially offsetting the increases, agency production costs and direct mail activities declined during 2011 versus a year ago, by $332,000 and $252,000, respectively. In comparison, agency production costs (primarily related to newly created television ads) as well as media costs (newspaper, television and radio advertising), direct mail activities, and sales promotions were higher during 2010 versus 2009, by $255,000, $111,000, $217,000 and $157,000, respectively. Also increasing during 2010 were business meals and entertainment expenditures and public relations costs (up $66,000 and $51,000, respectively), partially offset by printing related costs for brochures and other marketing materials (declining $35,000 on an aggregate basis) versus 2009.

Legal and professional fees were significantly lower year over year for 2011, decreasing by $1,840,000 or 23.1 percent to $6,137,000 compared to a year ago, versus 2010 when they were $993,000 or 14.2 percent higher compared to 2009. However, regulatory examination fees and CPA fees on an aggregate basis were $73,000 higher for 2011 than a year ago with new FHA audit requisites as the primary cause. More than offsetting these increases, legal fees were $383,000 lower for 2011 year over year, primarily for costs related to problem assets, principally OREO. Also, professional fees were $1,530,000 lower for 2011, reflecting lower costs for strategic planning and risk management assistance compared with 2010. For 2010, legal fees were $493,000 lower compared to 2009, but regulatory examination and CPA fees were $63,000 higher and professional fees were $1,422,000 higher. Professional fees were higher during 2010 due to increased regulatory compliance. The Company uses the consulting services of a former bank regulator who also serves as a director of Seacoast National to assist it with its compliance with the bank’s formal agreement with the OCC and regulatory examinations. For 2011, 2010 and 2009, Seacoast National paid $274,000, $524,000 and $410,000, respectively, for these services. Due to the reduced level of consulting assistance to address the formal agreement, we concluded these services in late 2011.

The FDIC assessment for the first, second, third and fourth quarters of 2011 totaled $959,000, $688,000, $687,000 and $679,000, respectively, compared to first, second, third and fourth quarter 2010’s assessments of $1,006,000, $1,039,000, $966,000 and $947,000, respectively. For 2009, FDIC assessments summed to $4,952,000 (including a special assessment of $976,000 charged by the FDIC in the second quarter of 2009). The FDIC mandated the prepayment of assessments for three years plus fourth quarter 2009’s assessment on December 30, 2009. The amount of the prepayment totaled $14.8 million. As of April 1, 2011, the FDIC’s calculation of assessments changed, utilizing total assets less Tier 1 risk-based capital as a base for calculation, versus average total deposits. Applicable premium rates have been adjusted for the change in the base, with

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specific adjusting risk factors deemed important by the FDIC utilized in the determination of applicable premium rates. Assessments under the FDIC’s new methodology are lower compared to a year ago. Still, the Company remains exposed to higher FDIC insurance costs, with assessment rates possibly increasing depending on the severity of bank failures and their impact on the FDIC’s Deposit Insurance Fund.

Net losses on other real estate owned (OREO) and repossessed assets, and asset disposition expenses associated with the management of OREO and repossessed assets (aggregated), totaled $1,535,000, $1,583,000, $1,385,000 and $1,529,000 for the first, second, third and fourth quarters of 2011, which was relatively stable quarter to quarter during 2011 and totaled $6,032,000 for the year. These costs appeared to moderate in 2011. In comparison, 2010’s expenditures were more volatile quarter to quarter, totaling $4,073,000, $415,000, $1,436,000 and $9,885,000 for the first, second, third and fourth quarters of 2010, respectively, summing to $15,809,000 for 2010 as a result of more nonperforming loans moving to foreclosure and sale. These costs summed to $6,327,000 during 2009. Of the $6,032,000 total for 2011, assets disposition costs summed to $2,281,000 and losses on OREO and repossessed assets totaled $3,751,000. The Company expects no material change in these costs in 2012.

Other noninterest expenses decreased $592,000 or 6.3 percent to $8,821,000 for 2011 compared to a year ago, and were $498,000 or 5.6 percent higher when comparing 2010 to 2009. One-time cash settlements for a branch lease of $150,000 and to a client of Seacoast National’s brokerage subsidiary (for $350,000) recorded during 2010, combined with the reversal of $184,000 during the second quarter of 2011 for a favorable outcome on the brokerage settlement, accounted for $684,000 of the decrease for 2011 from 2010. The accruals for these items in 2010 accounted for most of the increase of $498,000 year over year compared to 2009.

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’s fourth quarter 2011 Asset and Liability Management Committee (“ALCO”) model simulation indicates net interest income would increase 7.2 percent if interest rates are shocked 200 basis points up over the next 12 months and 3.8 percent if interest rates are shocked up 100 basis points. Recent regulatory guidance has placed more emphasis on rate shocks.

The Company had a positive gap position based on contractual and prepayment assumptions for the next 12 months, with a positive cumulative interest rate sensitivity gap as a percentage of total earning assets of 5.6 percent at December 31, 2011. This result includes assumptions for core deposit re-pricing recently validated for the Company by an independent third party consulting group.

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.

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, or “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

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investing activities. The Company’s Asset/Liability Committee, or “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 the 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 result of which is the EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term re-pricing risks and options risks 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 fourth quarter 2011 modeling, an instantaneous 100 basis point increase in rates is estimated to decrease the EVE 2.9 percent versus the EVE in a stable rate environment, while a 200 basis point increase in rates is estimated to decrease the EVE 7.3 percent.

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 and Contractual Commitments

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.

Contractual Commitments

	December 31, 2011
	Total		One year or less		Over one year through three years		Over three years through five years		Over five years
	(In thousands)
Deposit maturities	$	1,718,741	$	1,641,336	$	52,910	$	24,455	$	40
Short-term borrowings		136,252		136,252		—		—		—
Borrowed funds		50,000		—		—		—		50,000
Subordinated debt		53,610		—		—		—		53,610
Operating leases		28,147		3,427		5,585		4,558		14,577
	$	1,986,750	$	1,781,015	$	58,495	$	29,013	$	118,227

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

Cash flows from operations are a significant component of liquidity risk management and we consider both deposit maturities and the scheduled cash flows from loan and investment maturities and payments. Deposits are also 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 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 Bank of Atlanta.

Contractual maturities for assets and liabilities are reviewed to meet 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 held for sale and interest bearing deposits. The Company also has access to borrowed funds such as an FHLB line of credit and the Federal Reserve Bank of Atlanta borrower-in-custody program. 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, 2011, Seacoast National had available lines of credit under current lendable collateral value, which are subject to change, of $441 million and unsecured federal fund lines of credit of $40 million. Seacoast National had $378 million of United States Treasury and Government agency securities and mortgage backed securities not pledged and available for use under repurchase agreements, and had an additional $189 million in residential and commercial real estate loans available as collateral. In comparison, at December 31, 2010, the Company had available lines of credit of $340 million, and had $120 million of Treasury and Government agency securities and mortgage backed securities not pledged and available for use under repurchase agreements, as well as an additional $212 million in residential and commercial real estate loans available as collateral.

Liquidity, as measured in the form of cash and cash equivalents (including interest bearing deposits), totaled $167,081,000 on a consolidated basis at December 31, 2011 as compared to $211,405,000 at December 31, 2010, as a result of increases in the investment portfolio. The composition of cash and cash equivalents has changed from a year ago. Over the past twelve months, cash and due from banks increased $5,778,000 to $41,136,000 and interest bearing deposits decreased to $125,945,000 from $176,047,000 as a result of increased reserve requirements for deposits. The interest bearing deposits are maintained in Seacoast National’s account at the Federal Reserve Bank of Atlanta. 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 Seacoast National’s securities and loan portfolios.

The Company does not rely or is dependent on off-balance sheet financing or wholesale funding.

The Company is a legal entity separate and distinct from Seacoast National and its other subsidiaries. Various legal limitations, including Section 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W, restrict Seacoast National from lending or otherwise supplying funds to the Company or its non-bank subsidiaries. The Company has traditionally relied upon dividends from Seacoast National and securities offerings to provide funds to pay the Company’s expenses, to service the Company’s debt and to pay dividends upon Company common stock and preferred stock. In 2008 and 2007, Seacoast National paid dividends to the Company that exceeded its earnings in those years. Seacoast National cannot currently pay dividends to the Company without prior OCC approval. At December 31, 2011, the Company had cash and cash equivalents at the parent of approximately $11.1 million. In comparison, at December 31, 2010, the Company had cash and cash equivalents at the parent of approximately $21.6 million. During the third quarter of 2011, the Company remitted all deferred and current dividends due upon its Series A preferred stock issued through the TARP CPP as well as distributions on its subordinated debt related to trust preferred securities issued through affiliated trusts. All of the TARP CPP funds received in December 2008 have been contributed as additional capital to Seacoast National. Additional losses could prolong Seacoast National’s inability to pay dividends to its parent without regulatory approval (see “Capital Resources”).

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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.

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 $106 million at December 31, 2011, and $90 million at December 31, 2010 (see “Note P-Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

Income Taxes

The provision for the income taxes (benefits) for 2011 totaled $2.9 million and the benefit for the net loss for 2010 totaled $12.6 million. The deferred tax valuation allowance was decreased or increased by a like amount, and therefore there was no change in the carrying value of deferred tax assets (see “Critical Accounting Estimates – Deferred Tax Assets”). We anticipate that we will be able to place increased reliance on our forecast of future taxable earnings, which would result in realization of future tax benefits (see “Note L – Income Taxes” to the Company’s consolidated financial statements).

Capital Resources

Table 8 summarizes the Company’s capital position and selected ratios. The Company’s equity capital at December 31, 2011 totaled $170.1 million and the ratio of shareholders’ equity to period end total assets was 7.96 percent, compared with 8.25 percent at December 31, 2010, and 7.06 percent at December 31, 2009. Seacoast’s management uses certain “non-GAAP” financial measures in its analysis of the Company’s capital adequacy. Seacoast’s management uses this measure to assess the quality of capital and believes that investors may find it useful in their analysis of the Company. This capital measure is not necessarily comparable to similar capital measures that may be presented by other companies.

The Company’s capital position remains strong, meeting the general definition of “well capitalized”, with a total risk-based capital ratio of 18.77 percent at December 31, 2011, higher than December 31, 2010’s ratio of 17.84 percent and higher than 15.16 percent at December 31, 2009. The Bank agreed with its primary regulator, the OCC, to maintain a Tier 1 capital (to adjusted average assets) (“leverage ratio”) ratio of at least 7.50 percent and a total risk-based capital ratio of at least 12.00 percent as of March 31, 2009. Subsequently, as of January 31, 2010, following our capital raise, the Bank agreed to maintain a leverage ratio minimum of 8.50 percent. As of December 31, 2011, the Bank’s leverage ratio was 9.79 percent, compared to 9.29 percent at December 31, 2010 and 8.43 percent at December 31, 2009. The agreement with the OCC as to minimum capital ratios does not change the Bank’s status as “well-capitalized” for bank regulatory purposes, to which the Bank is currently in compliance.

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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 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 its bank subsidiary. Prior OCC approval presently is required for any payments of dividends from Seacoast National to the Company.

The OCC and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by 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 determined 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 Seacoast National or us, respectively. Under a recently adopted Federal Reserve policy, the board of directors of a bank holding company must consider different factors to ensure that its dividend level is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios such as any potential events that may occur before the payment date that could affect its ability to pay, while still maintaining a strong financial position. As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company, such as Seacoast, should consult with the Federal Reserve and eliminate, defer, or significantly reduce the bank holding company’s dividends if: (i) its net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

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. 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, prior to December 19, 2011, without the Treasury’s approval, we were not permitted to increase dividends on our common stock above $0.01 per share unless all of the Series A Preferred Stock had 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. 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.

Beginning in the third quarter of 2008, we reduced the dividend on our common stock to $0.01 per share and, as of May 19, 2009, we suspended the payment of dividends. On May 19, 2009, our board of directors decided to suspend regular quarterly cash dividends on our outstanding common stock and Series A Preferred Stock based on discussions with the Federal Reserve and a review of recently adopted Federal Reserve policies related to dividends and other distributions. The Company also suspended the payment of dividends on its trust preferred securities.

On August 15, 2011, the Federal Reserve approved payment of deferred dividends on the Series A Preferred Stock and deferred interest payments on our trust preferred securities. As a result, we remitted a payment for the Series A Preferred Stock of $6,614,000 and interest payments on the trust preferred securities aggregating to $2,675,000 during the third quarter of 2011, bringing the Company’s payment obligations on these securities current. The Company has paid all subsequent dividends and interest payments on these securities. The Company is required to continue to consult with the Federal Reserve and will seek approval each quarter before making these payments.

Our $50 million in Series A Preferred Stock issued to Treasury is an important component of our capital structure. On March 14, 2012, Treasury announced its intention to sell its investment in our Company to third

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parties and we may be given an opportunity to be one of the bidders for some or all of the preferred stock. At this time, we do not know if Treasury’s sale will occur, or what terms and conditions will apply should such a sale occur. Likewise, we do not know whether we will want to participate or be permitted to participate in any such process and whether our participation will require the issuance of additional securities or borrowings to complete the repurchase and support our capital structure. We continue to believe that the achievement of our earnings and asset quality objectives are a priority and may precede any decision by us to repurchase the Series A Preferred Stock, regardless of whether Treasury or other third parties own the securities. We regularly consider various scenarios for repurchase of the Series A Preferred Stock, based on our outlook for earnings and asset quality. Our outlook currently suggests repurchase of the Series A Preferred Stock in smaller installments out of future earnings is possible. An important consideration will be the recovery of our deferred tax valuation allowance which could significantly improve our tangible common equity. Another important consideration will be the future capacity and ability of Seacoast National to pay dividends to the Company.

Securities Offerings

A stock offering was completed during April of 2010 adding $50 million of Series B Mandatorily Convertible Noncumulative Nonvoting Preferred Stock (“Series B Preferred Stock”) as permanent capital, resulting in approximately $47.1 million in additional Tier 1 risk-based equity, net of issuance costs. The shares of Series B Preferred Stock were mandatorily converted into common shares five days subsequent to shareholder approval, which was granted at the Company’s annual meeting on June 22, 2010. Upon the conversion of the Series B Preferred Stock, approximately 34,465,000 shares of the Company’s common stock were issued pursuant to the Investment Agreement, dated as of April 8, 2010 between the Company and the investors, a copy of which was filed with the SEC on July 14, 2010 as Exhibit 10.1 to the Company’s Form 8-K/A.

Financial Condition

Total assets increased $120,994,000 or 6.0 percent to $2,137,375,000 at December 31, 2011, after decreasing $134,934,000 or 6.3 percent to $2,016,381,000 in 2010.

Loan Portfolio

Table 9 shows total loans (net of unearned income) for commercial and residential real estate, commercial and financial and consumer loans outstanding.

The Company defines commercial real estate in accordance with 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 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 (i.e. loans for which 50 percent 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 real estate investment trusts, or “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.

Total loans (net of unearned income and excluding the allowance for loan losses) were $1,208,074,000 at December 31, 2011, $32,534,000 or 2.6 percent less than at December 31, 2010, and were $1,240,608,000 at December 31, 2010, $156,895,000 or 11.2 percent lower than at December 31, 2009.

Overall loan growth was negative when comparing outstanding balances at December 31, 2011, December 31, 2010 and December 31, 2009, as a result of the economic recession, including lower demand for commercial loans, and the Company’s successful divestiture of specific problem loans (including

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residential construction and land development loans) through loan sales. Total problem loans sold in 2011, 2010 and 2009 totaled $28 million, $28 million, and $89 million, respectively, with the Company significantly reducing its exposure to construction and land development loans and improving its overall risk profile.

As shown in the supplemental loan table below, construction and land development loans declined $30.1 million or 38.0 percent to $49.2 million from December 31, 2010. The primary cause for the decrease in construction and land development loans was a reduction in commercial construction and land development loans for residential and commercial properties of $2.7 million or 19.3 percent and $22.5 million or 66.6 percent, respectively. Total outstanding balances for each of these portfolios were reduced to $11.3 million, respectively, at December 31, 2011. Construction and land development loans to individuals for personal residences included in total construction and land development loans were lower as well, declining $4.9 million or 15.6 percent to $26.6 million at December 31, 2011.

Construction and land development loans, including loans secured by commercial real estate, were comprised of the following types of loans at December 31, 2011 and 2010:

December 31	2011						2010
	Funded		Unfunded		Total		Funded		Unfunded		Total
	(In millions)
Construction and land development*
Residential:
Condominiums	$	—	$	—	$	—	$	0.9	$	—	$	0.9
Town homes		—		—		—		—		—		—
Single Family Residences		—		—		—		—		—		—
Single Family Land & Lots		6.2		—		6.2		7.0		—		7.0
Multifamily		5.1		—		5.1		6.1		—		6.1
		11.3		—		11.3		14.0		—		14.0
Commercial:
Office buildings		0.2		0.2		0.4		—		—		—
Retail trade		—		—		—		—		—		—
Land		9.3		—		9.3		33.6		0.1		33.7
Industrial		—		—		—		—		—		—
Healthcare		—		—		—		—		—		—
Churches & educational Facilities		0.1		0.3		0.4		—		—		—
Lodging		—		—		—		—		—		—
Convenience Stores		1.7		0.3		2.0		0.2		0.4		0.6
Marina		—		—		—		—		—		—
Other		—		—		—		—		—		—
		11.3		0.8		12.1		33.8		0.5		34.3
		22.6		0.8		23.4		47.8		0.5		48.3
Individuals:
Lot loans		17.9		—		17.9		24.4		—		24.4
Construction		8.7		17.6		26.3		7.1		7.9		15.0
		26.6		17.6		44.2		31.5		7.9		39.4
Total	$	49.2	$	18.4	$	67.6	$	79.3	$	8.4	$	87.7

* 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 have been restated to reflect the change.

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Commercial real estate mortgages were lower by $35.2 million or 6.5 percent to $508.4 million at December 31, 2011. The Company’s ten largest commercial real estate funded and unfunded loan relationships at December 31, 2011 aggregated to $128.7 million (versus $151.5 million a year ago) and for the top 25 commercial real estate relationships in excess of $5 million the aggregate funded and unfunded totaled $234.2 million (compared to 30 relationships to $292.5 million a year ago).

Commercial real estate mortgage loans, excluding construction and development loans, were comprised of the following loan types at December 31, 2011 and 2010:

December 31	2011						2010
	Funded		Unfunded		Total		Funded		Unfunded		Total
	(In millions)
Office buildings	$	119.6	$	0.9	$	120.5	$	122.0	$	0.9	$	122.9
Retail trade		140.6		—		140.6		151.5		—		151.5
Industrial		70.7		—		70.7		78.0		0.1		78.1
Healthcare		38.8		0.9		39.7		30.0		0.5		30.5
Churches and educational facilities		27.4		—		27.4		28.8		—		28.8
Recreation		3.2		0.1		3.3		2.9		—		2.9
Multifamily		9.4		—		9.4		22.4		—		22.4
Mobile home parks		2.2		—		2.2		2.5		—		2.5
Lodging		19.6		—		19.6		21.9		—		21.9
Restaurant		4.7		—		4.7		4.5		—		4.5
Agriculture		8.8		0.8		9.6		10.6		0.4		11.0
Convenience Stores		15.1		—		15.1		18.6		—		18.6
Marina		21.3		—		21.3		21.9		—		21.9
Other		27.0		0.2		27.2		28.0		0.2		28.2
Total	$	508.4	$	2.9	$	511.3	$	543.6	$	2.1	$	545.7

Fixed rate and adjustable rate loans secured by commercial real estate, excluding construction loans, totaled approximately $317 million and $191 million, respectively, at December 31, 2011, compared to $329 million and $215 million, respectively, a year ago.

Residential mortgage lending is an important segment of the Company’s lending activities. The Company has never offered sub-prime, Alt A, Option ARM or any negative amortizing residential loans, programs or products, although we have originated and hold residential mortgage loans from borrowers with original or current FICO credit scores that are less than “prime.” 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’s asset mitigation staff handle all foreclosure actions together with outside legal counsel and have never had foreclosure documentation or processes questioned by any party involved in the transaction.

Exposure to market interest rate volatility with respect to long-term fixed rate mortgage loans held for investment is managed by attempting to match maturities and re-pricing opportunities and through loan sales of most fixed rate product. For 2011, closed residential mortgage loan production totaled $191 million. Production improved during each quarter in 2011 as did sales of mortgages servicing released, with production and sales by quarter as follows: fourth quarter 2011 production totaled $56 million, of which $21 million was sold servicing-released, third quarter 2011 production totaled $53 million, of which $17 million was sold servicing-released, second quarter 2011 production totaled $50 million, of which $18 million was sold servicing-released, and first quarter 2011 production totaled $32 million, with $13 million sold servicing-released.

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Adjustable and fixed rate residential real estate mortgages were higher at December 31, 2011, by $30.8 million or 10.2 percent and $14.4 million or 17.4 percent, respectively, compared to a year ago. At December 31, 2011, approximately $334 million or 61 percent of the Company’s residential mortgage balances were adjustable, compared to $303 million or 59 percent at December 31, 2010. Loans secured by residential properties having fixed rates totaled approximately $97 million at December 31, 2011, of which 15- and 30-year mortgages totaled approximately $27 million and $70 million, respectively. The remaining fixed rate balances were comprised of home improvement loans, most with maturities of 10 years or less, that declined $13.1 million or 17.9 percent since December 31, 2010. In comparison, loans secured by residential properties having fixed rates totaled approximately $83 million at December 31, 2010, with 15- and 30-year fixed rate residential mortgages totaling approximately $26 million and $57 million, respectively. The Company also has a small home equity line portfolio totaling approximately $55 million at December 31, 2011, slightly lower than the $58 million that was outstanding at December 31, 2010.

Reflecting the impact on lending of the economic downturn, commercial loans increased $4.3 million or 8.8 percent year over year and totaled $53.1 million at December 31, 2011, compared to $48.8 million 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, 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, but not limited to, the effects of a downturn in the local economy, possible business failure, and insufficient cash flows.

The Company also provides consumer loans (including installment loans, loans for automobiles, boats, and other personal, family and household purposes, and indirect loans through dealers to finance automobiles) which decreased $1.0 million or 1.9 percent year over year and totaled $50.6 million (versus $51.6 million a year ago). In addition, real estate construction loans to individuals secured by residential properties totaled $8.7 million (versus $7.1 million a year ago), and residential lot loans to individuals which totaled $17.9 million (versus $24.4 million a year ago).

At December 31, 2011, the Company had commitments to make loans of $106.2 million, compared to $90.4 million at December 31, 2010 and $97.3 million at December 31, 2009 (see “Note P - Contingent Liabilities and Commitments with Off-Balance Sheet Risk” to the Company’s consolidated financial statements).

Loan Concentrations

Over the past five years, the Company has been pursuing an aggressive program to reduce exposure to loan types that have been most impacted by stressed market conditions in order to achieve lower levels of credit loss volatility. The program included aggressive collection efforts, loan sales and early stage loss mitigation strategies focused on the Company’s largest loans. Successful execution of this program has significantly reduced our exposure to larger balance loan relationships (including multiple loans to a single borrower or borrower group). Commercial loan relationships greater than $10 million were reduced by $487.5 million to $110.1 million at December 31, 2011 compared with year-end 2007, when the program started.

Commercial Relationships Greater than $10 Million (dollars in thousands)

December 31,	2011		2010		2009		2008		2007
Performing	$	84,610	$	112,469	$	145,797	$	374,241	$	592,408
Performing TDR*		25,494		28,286		31,152		—		—
Nonaccrual		—		20,913		28,525		14,873		5,152
Total	$	110,104	$	161,668	$	205,474	$	389,114	$	597,560
Top 10 Customer Loan Relationships	$	128,739	$	151,503	$	173,162	$	228,800	$	266,702

* TDR = Troubled debt restructures

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Commercial loan relationships greater than $10 million as a percent of tier 1 capital and the allowance for loan losses was reduced to 45.8 percent at December 31, 2011, compared with 66.5 percent at year-end 2010, 85.9 percent at year-end 2009, 162.1 percent at the end of 2008 and 258.1 percent at the end of 2007.

Concentrations in total construction and development loans and total commercial real estate (CRE) loans have also been substantially reduced. As shown in the table below, under regulatory guidance for construction and land development and commercial real estate loan concentrations as a percentage of total risk based capital, Seacoast National’s loan portfolio in these categories (as defined in the guidance) have improved.

December 31,	2011			2010			2009			2008			2007
Construction & Land Development Loans to Total Risk Based Capital		22	%		39	%		81	%		206	%		265	%
CRE Loans to Total Risk Based Capital		174	%		218	%		274	%		389	%		390	%

Below is the geographic location of the Company’s construction and land development loans (excluding loans to individuals) as a percentage of total construction and land development loans. The significant percentage increase in several of the counties at December 31, 2011 was caused by the decline in total construction and land development loans, which declined from $47.8 million at December 31, 2010 to $22.6 million at December 30, 2011 as a result of one large commercial land loan in Palm Beach county being collected.

	% of Total Construction and Land Development Loans
Florida County	2011		2010		2009
St. Lucie		24.8		12.0		16.6
Brevard		15.5		7.5		9.7
Martin		15.2		9.6		6.0
Okeechobee		11.6		5.4		2.3
Palm Beach		9.1		50.1		23.5
Indian River		8.7		4.9		13.6
Broward		6.6		0.0		3.6
Orange		2.6		1.9		2.8
Lake		2.3		1.1		0.4
Hendry		2.1		1.4		1.1
Marion		1.0		0.5		1.1
Columbia		0.4		0.2		0.0
Charlotte		0.0		1.9		0.7
Collier		0.0		3.5		1.9
Highlands		0.0		0.0		0.2
Miami-Dade		0.0		0.0		6.9
Volusia		0.0		0.0		9.0
Pinellas		0.0		0.0		0.4
Other		0.1		0.0		0.2
Total		100.0		100.0		100.0

Deposits and Borrowings

The Company’s balance sheet continues to be primarily core funded. The Company utilizes a focused retail deposit growth strategy that has successfully generated core deposit relationships and increased services per household since its implementation in the first quarter of 2008. During the first, second, third and fourth quarters of 2011, Seacoast National added 2,146, 1,825, 2,093 and 1,833 in new core deposit households, respectively, up by 470 new deposit households or 28.0 percent, 179 new deposit households or 10.8 percent, 275 new deposit households or 15.1 percent and 484 new deposit households or 35.9 compared to the same quarters in 2010. New

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core household growth increased by 21.6 percent over 2011 with new personal checking relationships up 20.2 percent and new commercial business checking relationships increasing 27.3 percent compared to 2010.

Total deposits increased $81,513,000, or 5.0 percent, to $1,718,741,000 at December 31, 2011 compared to one year earlier. Declining brokered deposits and single service time deposits were more than offset by increasing low cost or no cost deposits. Since December 31, 2010, interest bearing deposits (NOW, savings and money markets deposits) increased $109,736,000 or 13.5 percent to $922,361,000, noninterest bearing demand deposits increased $38,735,000 or 13.4 percent to $328,356,000, and CDs decreased $66,958,000 or 12.5 percent to $468,024,000. During 2010, total deposits decreased $142,206,000, or 8.0 percent, to $1,637,228,000 at December 31, 2010 compared to December 31, 2009. The decrease was primarily related to declining brokered deposits and single service time deposits.

Securities sold under repurchase agreements increased over the past twelve months by $38,039,000 or 38.7 percent to $136,252,000 at December 31, 2011. Repurchase agreements are offered by Seacoast National to select customers who wish to sweep excess balances on a daily basis for investment purposes. Public funds comprise a significant amount of the outstanding balance, with safety a major concern for these customers. At December 31, 2011, the number of sweep repurchase accounts was 168, compared to 165 a year ago.

At December 31, 2011, other borrowings were comprised of subordinated debt of $53.6 million related to trust preferred securities issued by trusts organized by the Company, and advances from the Federal Home Loan Bank (“FHLB”) of $50.0 million. The FHLB advances mature in 2017. For 2011 and 2010, the weighted average cost of our FHLB advances was 3.22 percent, unchanged.

The Company has two wholly owned trust subsidiaries, SBCF Capital Trust I and SBCF Statutory Trust II that were both formed in 2005. In 2007, the Company formed an additional wholly owned trust subsidiary, SBCF Statutory Trust III. The 2005 trusts each issued $20.0 million (totaling $40.0 million) of trust preferred securities and the 2007 trust issued an additional $12.0 million in trust preferred securities. All trust preferred securities are guaranteed by the Company on a junior subordinated basis. 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 percent of core capital, net of goodwill and intangibles. The Company believes that its trust preferred securities qualify under these revised regulatory capital rules and expects that it will be able to treat all $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 1 capital. The weighted average interest rate of our outstanding subordinated debt related to trust preferred securities was 1.71 percent during 2011, compared to 1.91 percent during 2010. The Company also formed SBCF Capital Trust IV and SBCF Capital Trust V in 2008, however, both are currently inactive.

Effects of Inflation and Changing Prices

The consolidated financial statements and related financial data presented herein have been prepared in accordance with U.S. GAAP, 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 by increasing their 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 higher interest rates likely will reduce the Company’s earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.

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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, 2011, the Company had $648,362,000 in securities available for sale (representing 97.0 percent of total securities), and securities held for investment of $19,977,000 (3.0 percent of total securities). The Company's securities portfolio increased $206.3 million or 44.7 percent from December 31, 2010 and $51.3 million or 12.5 percent from December 31, 2009. The portfolio has increased as a result of deposit growth and weak loan demand.

As part of the Company’s interest rate risk management process, an average duration for the securities portfolio is targeted. In addition, securities are acquired which return principal monthly that can be reinvested. Agency and private label mortgage backed securities and collateralized mortgage obligations comprise $657,786,000 of total securities, approximately 98 percent of the portfolio. Remaining securities are largely comprised of U.S. Treasury, and tax-exempt bonds issued by states, counties and municipalities.

The effective duration of the investment portfolio at December 31, 2011 was 2.3 years, compared to 2.9 years at December 31, 2010 and management believes it will maintain an effective duration between 2.0 to 3.0 over 2012.

Cash and due from banks and interest bearing deposits (aggregated) totaled $167,081,000 at December 31, 2011, compared to $211,405,000 at December 31, 2010, which reflects the investment of funds in the securities portfolio during 2011. The Company has maintained additional liquidity during the uncertain environment and may use additional funds to increase loans and investments as the economy continues to improve.

At December 31, 2011, available for sale securities had gross losses of $3,840,000 and gross gains of $12,355,000, compared to gross losses of $3,748,000 and gross gains of $6,734,000 at December 31, 2010. All of the securities with unrealized losses are reviewed for other-than-temporary impairment at least quarterly. As a result of these reviews during the first, second, third and fourth quarters of 2011 and 2010, it was determined that the unrealized losses were not other than temporarily impaired and the Company has the intent and ability to retain these securities until recovery over the periods presented (see additional discussion under “Critical Accounting Estimates-Fair Value and Other than Temporary Impairment of Securities Classified as Available for Sale”).

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.

Fourth Quarter Review

Net income available to common shareholders for the fourth quarter of 2011 totaled $1,611,000 or $0.02 per average common diluted share, compared to the third and second quarter 2011’s net income of $1,711,000 or $0.02 per average common diluted share and $176,000 or $0.00 per average common diluted share, respectively, and first quarter 2011’s net loss available to common shareholders of $579,000 or $0.01 per average common diluted share. The net income available to common shareholders in 2011 reflects a significant improvement when compared to a loss in 2010 for the fourth quarter of $11,142,000 or $0.12 per average common diluted share. The improved performance for 2011 primarily reflects lower credit costs through lower provisioning for loan losses and releases from our ALL reserve.

Our net interest margin of 3.42 percent declined slightly, decreasing 2 basis points during the fourth quarter of 2011 from the third quarter of 2011, and was identical to the fourth quarter 2010’s result. The Company has continued to benefit from lower rates paid for interest bearing liabilities due to the Federal Reserve’s reduction in

34

interest rates, as well as, an improved mix of deposits and reduction of nonaccrual loans, but a changing earning assets mix has been partially offsetting. The average cost of interest bearing liabilities was 10 basis points lower for the fourth quarter 2011 compared to the third quarter of 2011, 8 basis points lower for the third quarter 2011, compared to the second quarter of 2011, 3 basis points lower for the second quarter of 2011, compared to the first quarter of 2011, and 3 basis points lower for the first quarter of 2011, compared to the fourth quarter of 2010, resulting in a total reduction of 24 basis points over the last twelve months. The yield on earning assets declined by 9 basis points during the fourth quarter of 2011, compared to the third quarter of 2011, and was 20 basis points lower than for the fourth quarter of 2010. Loan demand was better in the third and fourth quarter of 2011 (compared to the first half of 2011) with improved loan production. However, we expect loan demand to continue to be challenging in 2012, which may impede further improvement to the yield on earning assets.

Noninterest income (excluding securities gains and losses) totaled $4.9 million for the fourth quarter of 2011, compared to $4.7 million for the third quarter of 2011, $4.5 million for the second quarter of 2011, $4.2 million for the first quarter of 2011, and $5.3 million for the fourth quarter of 2010. Included in fourth quarter 2010’s result was a $600,000 gain on the sale of Seacoast National’s merchant income portfolio that is reflected in other income. Signs of improved stability in home prices and greater transaction volumes resulted in fee income from residential real estate production increasing by $100,000 over fourth quarter 2010’s result. Service charges on deposit accounts were $9,000 higher when compared to fourth quarter 2010 and interchange income increased $139,000 over the same period. Service charges and fees derived from customer relationships increased as a result of more accounts and households as a result of our retail deposit growth strategy. Revenue from wealth management services was $47,000 lower when compared to fourth quarter 2010, and marine finance fees were $22,000 lower over the same period. Consumer activity and spending has been more robust despite weak economic conditions and directly affects many of the Company’s fee-based business activities.

Noninterest expenses increased by $0.9 million versus third quarter 2011’s result, but were $7.8 million lower when compared to the fourth quarter of 2010. Overhead related to FDIC insurance assessments, legal and professional costs and most significantly, (on an aggregate basis) asset dispositions expense and losses on other real estate owned and repossessed assets were lower compared to fourth quarter 2010, by $268,000, $484,000 and $8,356,000, respectively. The reduction in FDIC insurance assessments reflects the FDIC’s change in methodology for calculating assessments on April 1, 2011 that has benefited the Company since its inception. Legal and professional fees and asset disposition and losses on OREO reflect the decrease in problem assets in 2011, versus 2010. Increases from the fourth quarter of 2010 were primarily a result of salary and wages (up $762,000, including $310,000 related to severance that will provide a quarterly reduction to wages of $125,000 prospectively), employee benefits (up $294,000, including higher group health costs of $223,000 for the fourth quarter of 2011), and marketing costs [supporting our growth strategies] (higher by $183,000 year over year for the fourth quarter of 2011).

A provision for loan losses of $0.4 million was recorded in the fourth quarter of 2011, compared to no provisioning for the third quarter of 2011, $0.6 million and $0.9 million for the first and second quarters of 2011, respectively, and $4.0 million for the fourth quarter of 2010. Provisions for loans losses were much higher during 2010 as a result of higher net charge-offs and the Company maintaining its allowance for loan losses to loans outstanding ratio at 3.04 percent at December 31, 2010. The allowance for loan losses to loans outstanding ratio at December 31, 2011 was 2.12 percent, reflecting improvement in credit quality.

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Table 1 — Condensed Income Statement*

	2011			2010			2009
	(Tax equivalent basis)
Net interest income		3.25	%		3.20	%		3.31	%
Provision for loan losses		0.10			1.52			5.60
Noninterest income
Securities gains, net		0.06			0.18			0.24
Other		0.89			0.87			0.79
Noninterest expense
Goodwill impairment		—			—			2.24
Other		3.77			4.31			3.61
Income (loss) before income taxes		0.33			(1.58	)		(7.11	)
Provision (benefit) for income taxes including tax equivalent adjustment		0.01			0.02			(0.53	)
Net income (loss)		0.32	%		(1.60	)%		(6.58	)%

* As a Percent of Average Assets

Table 2 — Changes in Average Earning Assets

	Increase/(Decrease) 2011 vs 2010					Increase/(Decrease) 2010 vs 2009
	(Dollars in thousands)
Securities:
Taxable	$	163,271		39.6	%	$	55,749		15.6	%
Nontaxable		(2,071	)	(38.2	)		(1,530	)	(22.0	)
Federal funds sold and other investments		(66,479	)	(28.9	)		99,070		75.7
Loans, net		(110,890	)	(8.4	)		(260,162	)	(16.4	)
TOTAL	$	(16,169	)	(0.8	)	$	(106,873	)	(5.1	)

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

	2011 vs 2010 Due to Change in:									2010 vs 2009 Due to Change in:
	Volume			Rate			Total			Volume			Rate			Total
	(Dollars in thousands)
	Amount of increase (decrease)
EARNING ASSETS
Securities
Taxable	$	5,232		$	(1,613	)	$	3,619		$	2,218		$	(4,694	)	$	(2,476	)
Nontaxable		(132	)		1			(131	)		(99	)		(16	)		(115	)
		5,100			(1,612	)		3,488			2,119			(4,710	)		(2,591	)
Federal funds sold and other investments		(305	)		123			(182	)		460			(142	)		318
Loans, net		(5,757	)		(1,351	)		(7,108	)		(13,788	)		(1,588	)		(15,376	)
TOTAL EARNING ASSETS		(962	)		(2,840	)		(3,802	)		(11,209	)		(6,440	)		(17,649	)
INTEREST BEARING LIABILITIES
NOW(2)		(21	)		(455	)		(476	)		(3	)		(829	)		(832	)
Savings deposits		26			(79	)		(53	)		13			(204	)		(191	)
Money market accounts(2)		(120	)		(932	)		(1,052	)		437			(1,493	)		(1,056	)
Time deposits		(1,150	)		(1,580	)		(2,730	)		(2,911	)		(4,493	)		(7,404	)
		(1,265	)		(3,046	)		(4,311	)		(2,464	)		(7,019	)		(9,483	)
Federal funds purchased and other short term borrowings		52			(13	)		39			(96	)		(98	)		(194	)
Other borrowings		0			(104	)		(104	)		(368	)		(242	)		(610	)
TOTAL INTEREST BEARING LIABILITIES		(1,213	)		(3,163	)		(4,376	)		(2,928	)		(7,359	)		(10,287	)
NET INTEREST INCOME	$	251		$	323		$	574		$	(8,281	)	$	919		$	(7,362	)

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

(2) Certain reclassifications have been made to prior years' presentation to conform to the current year presentation.

Table 4 — Changes in Average Interest Bearing Liablities

	Increase/(Decrease) 2011 vs 2010					Increase/(Decrease) 2010 vs 2009
	(Dollars in thousands)
NOW(1)	$	(7,306	)	(1.8	)%	$	(625	)	(0.2	)%
Savings deposits		18,180		17.1			4,882		4.8
Money market accounts(1)		(21,942	)	(6.5	)		47,151		16.1
Time deposits		(63,002	)	(10.9	)		(125,327	)	(17.9	)
Federal funds purchased and other short term borrowings		19,389		22.3			(30,065	)	(25.7	)
Other borrowings		—		—			(13,110	)	(11.2	)
TOTAL	$	(54,681	)	(3.4	)	$	(117,094	)	(6.7	)

37

Table 5 — Three Year Summary

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

	2011								2010								2009
	Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate			Average Balance			Interest		Yield/ Rate
	(Dollars in thousands)
EARNING ASSETS
Securities
Taxable	$	575,414		$	17,500		3.04	%	$	412,143		$	13,881		3.37	%	$	356,394		$	16,357		4.59	%
Nontaxable		3,352			214		6.38			5,423			345		6.36			6,953			460		6.62
		578,766			17,714		3.06			417,566			14,226		3.41			363,347			16,817		4.63
Federal funds sold and other investments		163,419			797		0.49			229,898			979		0.43			130,828			661		0.51
Loans, net(2)		1,216,221			62,501		5.14			1,327,111			69,609		5.25			1,587,273			84,985		5.35
TOTAL EARNING ASSETS		1,958,406			81,012		4.14			1,974,575			84,814		4.30			2,081,448			102,463		4.92
Allowance for loan losses		(32,228	)							(41,650	)							(36,951	)
Cash and due from banks		30,502								29,966								32,336
Bank premises and equipment		35,146								37,948								42,997
Other assets		71,858								79,731								108,588
	$	2,063,684							$	2,080,570							$	2,228,418
INTEREST BEARING LIABILITIES
NOW(3)	$	399,044			941		0.24	%	$	406,350			1,417		0.35	%	$	406,975			2,249		0.55	%
Savings deposits		124,798			137		0.11			106,618			190		0.18			101,736			381		0.37
Money market accounts(3)		317,922			1,293		0.41			339,864			2,345		0.69			292,713			3,401		1.16
Time deposits		512,766			8,615		1.68			575,768			11,345		1.97			701,095			18,749		2.67
Federal funds purchased and other short term borrowings		106,495			276		0.26			87,106			237		0.27			117,171			431		0.37
Other borrowings		103,610			2,691		2.60			103,610			2,795		2.70			116,720			3,405		2.92
TOTAL INTEREST BEARING
LIABILIITIES		1,564,635			13,953		0.89			1,619,316			18,329		1.13			1,736,410			28,616		1.65
Demand deposits		323,044								277,754								276,412
Other liabilities		10,709								11,478								16,798
		1,898,388								1,908,548								2,029,620
Shareholders’ equity		165,296								172,022								198,798
	$	2,063,684							$	2,080,570							$	2,228,418
Interest expense as % of earning assets							0.71	%							0.93	%							1.37	%
Net interest income/yield on earning assets				$	67,059		3.42	%				$	66,485		3.37	%				$	73,847		3.55	%

(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.

(3) Certain reclassifications have been made to prior years' presentation to conform to the current year presentation.

38

Table 6 — Noninterest Income

	Year Ended						% Change
	2011		2010		2009		11/10			10/09
	(Dollars in thousands)
Service charges on deposit accounts	$	6,262	$	5,925	$	6,491		5.7	%		(8.7	)%
Trust fees		2,111		1,977		2,098		6.8			(5.8	)
Mortgage banking fees		2,140		2,119		1,746		1.0			21.4
Brokerage commissions and fees		1,122		1,174		1,416		(4.4	)		(17.1	)
Marine finance fees		1,209		1,334		1,153		(9.4	)		15.7
Interchange income		3,808		3,163		2,613		20.4			21.0
Other deposit based EFT fees		318		321		331		(0.9	)		(3.0	)
Other		1,375		2,121		1,647		(35.2	)		28.8
		18,345		18,134		17,495		1.2			3.7
Securities gains, net		1,220		3,687		5,399		(66.9	)		(31.7	)
TOTAL	$	19,565	$	21,821	$	22,894		(10.3	)		(4.7	)

Table 7 — NonInterest Expense

	Year Ended						% Change
	2011		2010		2009		11/10			10/09
	(Dollars in thousands)
Salaries and wages	$	27,288	$	26,408	$	26,693		3.3	%		(1.1	)%
Employee benefits		5,875		5,717		6,109		2.8			(6.4	)
Outsourced data processing costs		6,583		5,981		5,623		10.1			6.4
Telephone / data lines		1,179		1,505		1,835		(21.7	)		(18.0	)
Occupancy		7,627		7,480		8,260		2.0			(9.4	)
Furniture and equipment		2,291		2,398		2,649		(4.5	)		(9.5	)
Marketing		2,917		2,910		2,067		0.2			40.8
Legal and professional fees		6,137		7,977		6,984		(23.1	)		14.2
FDIC assessments		3,013		3,958		4,952		(23.9	)		(20.1	)
Amortization of intangibles		847		985		1,259		(14.0	)		(21.8	)
Asset dispositions expense		2,281		2,268		1,172		0.6			93.5
Net loss on other real estate owned and repossessed assets		3,751		13,541		5,155		(72.3	)		162.7
Goodwill impairment		—		—		49,813		n/m			(100.0	)
Other		7,974		8,428		7,656		(5.4	)		10.1
TOTAL	$	77,763	$	89,556	$	130,227		(13.2	)		(31.2	)

n/m = not meaningful

39

Table 8 — Capital Resources

	December 31
	2011			2010			2009
				(Dollars in thousands)
TIER 1 CAPITAL
Common stock	$	9,469		$	9,349		$	5,887
Preferred stock		47,497			46,248			44,999
Warrant for purchase of common stock		3,123			3,123			3,123
Additional paid in capital		218,925			218,399			174,973
Accumulated (deficit)		(114,152	)		(112,652	)		(78,200	)
Treasury stock		(13	)		(1	)		(855	)
Qualifying trust preferred securities		52,000			52,000			49,950
Intangibles		(2,289	)		(3,137	)		(4,121	)
Other		284			(7,965	)		(1,712	)
TOTAL TIER 1 CAPITAL		214,844			205,364			194,044
TIER 2 CAPITAL
Qualifying trust preferred securities		—			—			2,050
Allowance for loan losses, as limited (1)		15,459			15,766			17,981
TOTAL TIER 2 CAPITAL		15,459			15,766			20,031
TOTAL RISK-BASED CAPITAL	$	230,303		$	221,130		$	214,075
Risk weighted assets	$	1,226,547		$	1,239,245		$	1,411,202
Tier 1 risk based capital ratio		17.51	%		16.57	%		13.75	%
Total risk based capital ratio		18.77			17.84			15.16
Regulatory minimum		8.00			8.00			8.00
Tier 1 capital to adjusted total assets		10.31			10.25			8.88
Regulatory minimum		4.00			4.00			4.00
Shareholders' equity to assets		7.96			8.25			7.06
Average shareholders' equity to average total assets		8.01			8.27			8.92

(1) Includes reserve for unfunded commitments of $44,000 at December 31, 2011 and 2010, respectively, and $65,000 at December 31, 2009.

40

Table 9 — Loans Outstanding

	December 31
	2011		2010		2009		2008		2007
	(In thousands)
Construction and land development
Residential	$	11,255	$	14,025	$	47,599	$	129,899	$	295,082
Commercial		11,338		33,773		77,469		209,297		242,448
		22,593		47,798		125,068		339,196		537,530
Individuals		26,591		31,508		37,800		56,047		72,037
		49,184		79,306		162,868		395,243		609,567
Commercial real estate		508,353		543,603		584,217		557,705		517,332
Real estate mortgage
Residential real estate
Adjustable		334,140		303,320		289,378		328,992		319,470
Fixed rate		96,952		82,559		88,645		95,456		87,506
Home equity mortgages		60,253		73,382		86,771		84,810		91,418
Home equity lines		54,901		57,733		60,066		58,502		59,088
		546,246		516,994		524,860		567,760		557,482
Commercial and financial		53,105		48,825		61,058		82,765		126,695
Installment loans to individuals
Automobiles and trucks		8,736		10,874		15,322		20,798		24,940
Marine loans		19,932		19,806		26,423		25,992		33,185
Other		21,943		20,922		22,279		26,118		28,237
		50,611		51,602		64,024		72,908		86,362
Other loans		575		278		476		347		951
TOTAL	$	1,208,074	$	1,240,608	$	1,397,503	$	1,676,728	$	1,898,389

Table 10 — Loan Maturity Distribution

	December 31, 2011
	Commercial and Financial		Construction and Land Development		Total
			(In thousands)
In one year or less	$	6,715	$	17,164	$	23,879
After one year but within five years:
Interest rates are floating or adjustable		2,382		12,351		14,733
Interest rates are fixed		19,427		11,052		30,479
In five years or more:
Interest rates are floating or adjustable		30		4,754		4,784
Interest rates are fixed		24,551		3,863		28,414
TOTAL	$	53,105	$	49,184	$	102,289

41

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

	December 31
	2011		% of Total			2010		% of Total
	(Dollars in thousands)
Maturity Group:
Under 3 Months	$	67,120		30.2	%	$	43,335		17.2	%
3 to 6 Months		65,463		29.4			42,256		16.8
6 to 12 Months		57,090		25.6			81,580		32.4
Over 12 Months		32,942		14.8			84,730		33.6
TOTAL	$	222,615		100.0	%	$	251,901		100.0	%

Table 12 — Summary of Loan Loss Experience

	Year Ended December 31
	2011			2010			2009			2008			2007
	(Dollars in thousands)
Beginning balance	$	37,744		$	45,192		$	29,388		$	21,902		$	14,915
Provision for loan losses		1,974			31,680			124,767			88,634			12,745
Charge offs:
Construction and land development		4,739			18,135			38,906			72,191			3,788
Commercial real estate		3,663			11,162			31,080			3,384			—
Residential real estate		7,482			10,797			36,282			5,051			575
Commercial and financial		—			759			3,337			2,251			1,071
Consumer		562			775			1,221			502			516
TOTAL CHARGE OFFS		16,446			41,628			110,826			83,379			5,950
Recoveries:
Construction and land development		1,053			483			578			1,858			—
Commercial real estate		354			517			293			—			—
Residential real estate		513			861			529			55			—
Commercial and financial		301			424			197			222			57
Consumer		72			215			266			96			135
TOTAL RECOVERIES		2,293			2,500			1,863			2,231			192
Net loan charge offs (recoveries)		14,153			39,128			108,963			81,148			5,758
ENDING BALANCE	$	25,565		$	37,744		$	45,192		$	29,388		$	21,902
Loans outstanding at end of year*	$	1,208,074		$	1,240,608		$	1,397,503		$	1,676,728		$	1,898,389
Ratio of allowance for loan losses to loans outstanding at end of year		2.12	%		3.04	%		3.23	%		1.75	%		1.15	%
Daily average loans outstanding*	$	1,216,221		$	1,327,111		$	1,587,273		$	1,821,679		$	1,828,537
Ratio of net charge offs (recoveries) to average loans outstanding		1.16	%		2.95	%		6.86	%		4.45	%		0.31	%

* Net of unearned income.

42

Table 13 — Allowance for Loan Losses

	December 31,
(Dollars in thousands)	2011			2010
ALLOCATION BY LOAN TYPE
Construction and land development	$	1,883		$	7,214
Commercial real estate loans		11,477			18,563
Residential real estate loans		10,966			10,102
Commercial and financial loans		402			480
Consumer loans		837			1,385
TOTAL	$	25,565		$	37,744
							December 31
							2009			2008			2007
ALLOCATION BY LOAN TYPE(1)
Commercial real estate loans							$	30,955		$	17,569		$	11,884
Residential real estate loans								9,667			6,437			6,058
Commercial and financial loans								1,099			2,782			3,070
Consumer loans								3,471			2,600			890
TOTAL							$	45,192		$	29,388		$	21,902
YEAR END LOAN TYPES AS A PERCENT OF TOTAL LOANS
Construction and land development		4.1	%		6.4	%		11.7	%		23.6	%		32.1	%
Commercial real estate loans		42.1			43.8			41.7			33.3			27.2
Residential real estate loans		45.2			41.7			37.6			33.8			29.4
Commercial and financial loans		4.4			3.9			4.4			5.0			6.7
Consumer loans		4.2			4.2			4.6			4.3			4.6
TOTAL		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

(1) The Company does not have the ability to restate allocation by loan type to the new format for years prior to 2010.

43

Table 14 — Nonperforming Assets

Financing Receivables on Nonaccrual Status

	December 31,
	2011			2010			2009			2008			2007
	(Dollars in thousands)
Nonaccrual loans(1)(2)
Construction and land development	$	2,227		$	29,229		$	59,809		$	72,328		$	52,952
Commercial real estate loans		13,120			19,101			23,865			4,387			11,333
Residential real estate loans		12,555			14,810			12,790			10,163			3,531
Commercial and financial loans		16			4,607			535			—			18
Consumer loans		608			537			877			92			—
Total		28,526			68,284			97,876			86,970			67,834
Other real estate owned
Construction and land development		10,879			15,358			19,086			1,313			579
Commercial real estate loans		7,517			8,368			3,461			—			—
Residential real estate loans		2,550			1,971			2,838			3,722			156
Total		20,946			25,697			25,385			5,035			735
TOTAL NONPERFORMING ASSETS	$	49,472		$	93,981		$	123,261		$	92,005		$	68,569
Amount of loans outstanding at end of year(2)	$	1,208,074		$	1,240,608		$	1,397,503		$	1,676,728		$	1,898,389
Ratio of total nonperforming assets to loans outstanding and other real estate owned at end of period		4.03	%		7.42	%		8.66	%		5.47	%		3.61	%
Accruing loans past due 90 days or more	$	—		$	—		$	156		$	1,838		$	25
Loans restructured and in compliance with modified terms(3)		71,611			66,350			57,433			12,616			11

(1) Interest income that could have been recorded during 2011, 2010 and 2009 related to nonaccrual loans was $1,178,000, $5,087,000, and $6,602,000, respectively, none of which was included in interest income or net income. All nonaccrual loans are secured.

(2) Net of unearned income.

(3) Interest income that would have been recorded based on original contractual terms was $4,734,000, $4,187,000, and $3,856,000, respectively, for 2011, 2010 and 2009. The amount included in interest income under the modified terms for 2011, 2010 and 2009 was $3,194,000, $2,439,000, and $2,958,000, respectively.

44

Table 15 — Securities Available For Sale

	December 31
	Amortized Cost		Fair Value		Unrealized Gains		Unrealized Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities
2011	$	1,699	$	1,724	$	25	$	—
2010		4,192		4,212		20		—
Mortgage-backed securities of U.S. Government Sponsored Entities
2011		135,665		138,447		2,819		(37	)
2010		120,439		120,634		1,218		(1,023	)
Collateralized mortgage obligations of U.S. Government Sponsored Entities
2011		428,139		436,934		9,111		(316	)
2010		212,715		215,459		4,101		(1,357	)
Private collateralized mortgage obligations
2011		73,247		70,090		330		(3,487	)
2010		90,428		90,384		1,325		(1,369	)
Obligations of state and political subdivisions
2011		1,097		1,167		70		—
2010		1,638		1,709		71		—
Other
2011		—		—		—		—
2010		2,742		2,742		—		—
Total Securities Available For Sale
2011	$	639,847	$	648,362	$	12,355	$	(3,840	)
2010	$	432,154	$	435,140	$	6,735	$	(3,749	)

Table 16 — Securities Held For Investment

	December 31
	Amortized Cost		Fair Value		Unrealized Gains		Unrealized Losses
	(In thousands)
Collateralized mortgage obligations of U.S. Government Sponsored Entities
2011	$	10,475	$	10,339	$	—	$	(136	)
2010		15,423		15,508		85		—
Private collateralized mortgage obligations
2011		1,840		1,880		40		—
2010		3,540		3,619		79		—
Obligations of states and political subdivisions
2011		6,662		7,232		570		—
2010		7,398		7,223		69		(244	)
Other Securities
2011		1,000		1,036		36		—
2010		500		503		3		—
Total Securities Held For Investment
2011	$	19,977	$	20,487	$	646	$	(136	)
2010	$	26,861	$	26,853	$	236	$	(244	)

45

Table 17 — Maturity Distribution of Securities Held For Investment

	December 31, 2011
	1 Year Or Less		1-5 Years			5-10 Years			After 10 Years			No Contractual Maturity			Total			Average Maturity In Years
	(Dollars in thousands)
AMORTIZED COST
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	—	$	—		$	10,475		$	—		$	—		$	10,475			5.81
Private collateralized mortgage obligations		—		1,840			—			—			—			1,840			4.90
Obligations of state and political subdivisions		—		127			1,503			5,032			—			6,662			12.69
Other		—		—			—			—			1,000			1,000			*
Total Securities Held For Investment	$	—	$	1,967		$	11,978		$	5,032		$	1,000		$	19,977			8.14
FAIR VALUE
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	—	$	—		$	10,339		$	—		$	—		$	10,339
Private collateralized mortgage obligations		—		1,880			—			—			—			1,880
Obligations of state and political subdivisions		—		127			1,632			5,473			—			7,232
Other		—		—			—			—			1,036			1,036
Total Securities Held For Investment	$	—	$	2,007		$	11,971		$	5,473		$	1,036		$	20,487
WEIGHTED AVERAGE YIELD (FTE)
Collateralized mortgage obligations of U.S. Government Sponsored Entities		—		—			2.20	%		—			—			2.20	%
Private collateralized mortgage obligations		—		5.15	%		—			—			—			5.15	%
Obligations of state and political subdivisions		—		6.73	%		6.04	%		4.97	%		—			5.25	%
Other		—		—			—			—			2.93	%		2.93	%
Total Securities Held For Investment		—		5.25	%		2.68	%		4.97	%		2.93	%		3.53	%

* Other Securities excluded from calculated average for total securities.

46

Table 18 — Maturity Distribution of Securities Available For Sale

	December 31, 2011
	1 Year Or Less			1-5 Years			5-10 Years			After 10 Years			No Contractual Maturity			Total			Average Maturity In Years
	(Dollars in thousands)
AMORTIZED COST
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities	$	—		$	1,699		$	—		$	—		$	—		$	1,699			1.37
Mortgage-backed securities of U.S. Government Sponsored Entities		—			68,583			44,671			22,411			—			135,665			6.20
Collateralized mortgage obligations of U.S. Government Sponsored Entities		5,762			317,299			105,078			—			—			428,139			4.39
Private collateralized mortgage obligations		—			56,405			16,842			—			—			73,247			3.90
Obligations of state and political subdivisions		—			—			1,097			—			—			1,097			6.77
Total Securities Available For Sale	$	5,762		$	443,986		$	167,688		$	22,411		$	—		$	639,847			4.71
FAIR VALUE
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities	$	—		$	1,724		$	—		$	—		$	—		$	1,724
Mortgage-backed securities of U.S. Government Sponsored Entities		—			70,141			45,440			22,866			—			138,447
Collateralized mortgage obligations of U.S. Government Sponsored Entities		5,889			324,733			106,312			—			—			436,934
Private collateralized mortgage obligations		—			54,431			15,659			—			—			70,090
Obligations of state and political subdivisions		—			—			1,167			—			—			1,167
Total Securities Available For Sale	$	5,889		$	451,029		$	168,578		$	22,866		$	—		$	648,362
WEIGHTED AVERAGE YIELD (FTE)
U.S. Treasury securities and obligations of U.S. Government Sponsored Entities		—			1.28	%		—			—			—			1.28	%
Mortgage-backed securities of U.S. Government Sponsored Entities		—			2.73	%		2.21	%		2.31	%		—			2.49	%
Collateralized mortgage obligations of U.S. Government Sponsored Entities		5.47	%		2.80	%		2.84	%		—			—			2.85	%
Private collateralized mortgage obligations		0.00	%		4.36	%		4.35	%		—			—			4.36	%
Obligations of state and political subdivisions		—			—			6.65	%		—			—			6.65	%
Total Securities Available For Sale		5.47	%		2.99	%		2.85	%		2.31	%		0.00	%		2.95	%

47

Table 19 — Interest Rate Sensitivity Analysis (1)

	December 31, 2011
	0-3 Months			4-12 Months			1-5 Years		Over 5 Years		Total
	(Dollars in thousands)
Federal funds sold and interest bearing deposits	$	125,945		$	—		$	—	$	—	$	125,945
Securities (2)		198,349			121,546			244,559		95,370		659,824
Loans, net (3)		218,441			256,662			558,283		152,957		1,186,343
Earning assets		542,735			378,208			802,842		248,327		1,972,112
Savings deposits (4)		922,361			—			—		—		922,361
Time deposits		125,541			262,800			79,643		40		468,024
Borrowings		189,862			—			—		50,000		239,862
Interest bearing liablities		1,237,764			262,800			79,643		50,040		1,630,247
Interest sensitivity gap	$	(695,029	)	$	115,408		$	723,199	$	198,287	$	341,865
Cumulative gap	$	(695,029	)	$	(579,621	)	$	143,578	$	341,865
Cumulative gap to total earning assets (%)		(35.2	)		(29.4	)		7.3		17.3
Earning assets to interest bearing liabilities (%)		43.8			143.9			1,008.1		496.3

(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 $603,209) were deemed repriceable in "4-12 months", the interest sensitivity gap and cumulative gap would be ($91,820) or (4.7)% of total earning assets and an earning assets to interest bearing liabilities for the 0-3 months category of 85.5%

48

Stock Performance Graph

The line graph below compares the cumulative total stockholder return on Seacoast common stock for the five years ended December 31, 2011 with the cumulative total return of the NASDAQ Composite Index and the SNL Southeast Bank Index for the same period. The graph and table assume that $100 was invested on December 29, 2006 (the last day of trading for the year ended December 31, 2006) in each of Seacoast common stock, the NASDAQ Composite Index and the SNL Southeast Bank Index. The cumulative total return represents the change in stock price and the amount of dividends received over the period, assuming all dividends were reinvested.

Comparison of Five-Year Cumulative Return for Seacoast Common Stock, the NASDAQ Composite Index and the SNL Southeast Bank Index

Total Return Performance

	Period Ending
Index	12/31/06		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11
Seacoast Banking Corporation of Florida		100.00		42.98		28.64		7.09		6.35		6.61
NASDAQ Composite		100.00		110.66		66.42		96.54		114.06		113.16
SNL Southeast Bank		100.00		75.33		30.50		30.62		29.73		17.39

49

SELECTED QUARTERLY INFORMATION

QUARTERLY CONSOLIDATED INCOME (LOSS) STATEMENTS (UNAUDITED)

	2011 Quarters									2010 Quarters
	Fourth		Third		Second		First			Fourth			Third			Second			First
	(Dollars in thousands, except per share data)
Net interest income:
Interest income	$	20,058	$	20,278	$	20,287	$	20,169		$	20,243		$	20,838		$	21,048		$	22,412
Interest expense		3,084		3,410		3,746		3,713			3,922			4,377			4,831			5,199
Net interest income		16,974		16,868		16,541		16,456			16,321			16,461			16,217			17,213
Provision for loan losses		432		—		902		640			3,975			8,866			16,771			2,068
Net interest income after provision for loan losses		16,542		16,868		15,639		15,816			12,346			7,595			(554	)		15,145
Noninterest income:
Service charges on deposit accounts		1,599		1,675		1,546		1,442			1,590			1,511			1,452			1,372
Trust fees		530		541		517		523			510			500			491			476
Mortgage banking fees		680		556		509		395			580			654			464			421
Brokerage commissions and fees		258		321		223		320			325			306			257			286
Marine finance fees		333		229		349		298			355			330			310			339
Interchange income		953		969		995		891			814			810			822			717
Other deposit based EFT fees		78		71		79		90			75			71			82			93
Other income		452		344		329		250			938			350			374			459
Securities gains, net		1,083		137		—		—			—			210			1,377			2,100
Total noninterest income		5,966		4,843		4,547		4,209			5,187			4,742			5,629			6,263
Noninterest expenses:
Salaries and wages		7,301		6,902		6,534		6,551			6,539			6,631			6,776			6,462
Employee benefits		1,447		1,391		1,437		1,600			1,153			1,367			1,419			1,778
Outsourced data processing costs		1,677		1,685		1,699		1,522			1,496			1,503			1,503			1,479
Telephone/data lines		285		286		319		289			321			383			402			399
Occupancy		1,795		1,967		1,919		1,946			1,699			1,928			1,911			1,942
Furniture and equipment		525		555		618		593			609			595			585			609
Marketing		947		551		667		752			764			577			913			656
Legal and professional fees		1,299		1,496		1,585		1,757			1,783			2,491			1,602			2,101
FDIC assessments		679		687		688		959			947			966			1,039			1,006
Amortization of intangibles		212		211		212		212			212			212			246			315
Asset disposition expense		275		479		441		1,086			1,122			587			310			249
Net loss on other real estate owned and repossessed assets		1,254		906		1,142		449			8,763			849			105			3,824
Other		2,264		1,947		1,812		1,951			2,330			1,886			2,060			2,152
Total noninterest expenses		19,960		19,063		19,073		19,667			27,738			19,975			18,871			22,972
Income (loss) before income taxes		2,548		2,648		1,113		358			(10,205	)		(7,638	)		(13,796	)		(1,564	)
Provision for income taxes		—		—		—		—			—			—			—			—
Net income (loss)		2,548		2,648		1,113		358			(10,205	)		(7,638	)		(13,796	)		(1,564	)
Preferred stock dividends and accretion on preferred stock discount		937		937		937		937			937			937			937			937
Net income (loss) available to shareholders	$	1,611	$	1,711	$	176	$	(579	)	$	(11,142	)	$	(8,575	)	$	(14,733	)	$	(2,501	)
PER COMMON SHARE DATA
Net income (loss) diluted	$	0.02	$	0.02	$	—	$	(0.01	)	$	(0.12	)	$	(0.09	)	$	(0.25	)	$	(0.04	)
Net income (loss) basic		0.02		0.02		—		(0.01	)		(0.12	)		(0.09	)		(0.25	)		(0.04	)
Cash dividends declared:
Common stock		—		—		—		—			—			—			—			—
Market price common stock:
Low close		1.28		1.27		1.49		1.43			1.12			1.12			1.28			1.37
High close		1.69		1.74		1.87		1.86			1.46			1.48			2.50			2.04
Bid price at end of period		1.52		1.47		1.50		1.58			1.46			1.22			1.33			1.69

50

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, 2011, 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. 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, Seacoast Banking Corporation of Florida maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, 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, 2011 and 2010, and the related consolidated statements of income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011, and our report dated March 14, 2012 expressed an unqualified opinion on those consolidated financial statements.

Miami, Florida

March 14, 2012

Certified Public Accountants

51

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, 2011 and 2010, and the related consolidated statements of income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011. 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 the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have 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, 2011, 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 14, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Miami, Florida

March 14, 2012

Certified Public Accountants

52

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

	For the Year Ended December 31
	2011		2010			2009
	(Dollars in thousands, except share data)
INTEREST INCOME
Interest on securities
Taxable	$	17,500	$	13,881		$	16,357
Nontaxable		140		227			305
Interest and fees on loans		62,355		69,454			84,882
Interest on federal funds sold and interest bearing deposits		797		979			661
Total interest income		80,792		84,541			102,205
INTEREST EXPENSE
Interest on savings deposits		2,371		3,952			6,031
Interest on time certificates		8,615		11,345			18,749
Interest on short term borrowings		276		237			431
Interest on subordinated debt		1,084		1,188			1,354
Interest on other borrowings		1,607		1,607			2,051
Total interest expense		13,953		18,329			28,616
NET INTEREST INCOME		66,839		66,212			73,589
Provision for loan losses		1,974		31,680			124,767
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES		64,865		34,532			(51,178	)
NONINTEREST INCOME
Securities gains, net		1,220		3,687			5,399
Other		18,345		18,134			17,495
Total noninterest income		19,565		21,821			22,894
NONINTEREST EXPENSE
Other noninterest expenses		77,763		89,556			80,414
Goodwill impairment		—		—			49,813
Total noninterest expense		77,763		89,556			130,227
INCOME (LOSS) BEFORE INCOME TAXES		6,667		(33,203	)		(158,511	)
Benefit for income taxes		0		0			(11,825	)
NET INCOME (LOSS)		6,667		(33,203	)		(146,686	)
Preferred stock dividends and accretion on preferred stock discount		3,748		3,748			3,748
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS	$	2,919	$	(36,951	)	$	(150,434	)
SHARE DATA
Net income (loss) per share of common stock
Diluted	$	0.03	$	(0.48	)	$	(4.74	)
Basic		0.03		(0.48	)		(4.74	)
Average common shares outstanding
Diluted		93,801,073		76,561,692			31,733,260
Basic		93,511,983		76,561,692			31,733,260

See notes to consolidated financial statements.

53

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31
	2011			2010
	(Dollars in thousands, except share data)
ASSETS
Cash and due from banks	$	41,136		$	35,358
Interest bearing deposits with other banks		125,945			176,047
Total cash and cash equivalents		167,081			211,405
Securities available for sale (at fair value)		648,362			435,140
Securities held for investment (fair values: $20,487 in 2011 and $26,853 in 2010)		19,977			26,861
Total securities		668,339			462,001
Loans available for sale		6,795			12,519
Loans, net of deferred costs of $1,632 in 2011 and $973 in 2010		1,208,074			1,240,608
Less: Allowance for loan losses		(25,565	)		(37,744	)
Net loans		1,182,509			1,202,864
Bank premises and equipment, net		34,227			36,045
Other real estate owned		20,946			25,697
Other intangible assets		2,289			3,137
Other assets		55,189			62,713
TOTAL ASSETS	$	2,137,375		$	2,016,381
LIABILITIES
Demand deposits (noninterest bearing)	$	328,356		$	289,621
NOW		469,631			401,005
Savings deposits		133,578			113,082
Money market accounts		319,152			298,538
Other time deposits		244,886			281,681
Brokered time certificates		4,558			7,093
Time certificates of $100,000 or more		218,580			246,208
Total deposits		1,718,741			1,637,228
Federal funds purchased and securities sold under agreement to repurchase, maturing within 30 days		136,252			98,213
Borrowed funds		50,000			50,000
Subordinated debt		53,610			53,610
Other liabilities		8,695			11,031
		1,967,298			1,850,082
Commitments and Contingencies (Notes K and P)
SHAREHOLDERS’ EQUITY
Series A preferred stock, par value $0.10 per share - authorized 4,000,000 shares, issued and outstanding 2,000 shares of Series A		47,497			46,248
Warrant for purchase of 589,625 shares of common stock at $6.36 per share		3,123			3,123
Common stock, par value $.10 per share authorized 300,000,000 shares, issued 94,693,002 and outstanding 94,686,801 shares in 2011 and authorized 300,000,000 shares, issued 93,487,652 and outstanding 93,487,581 shares in 2010		9,469			9,349
Additional paid-in capital		218,925			218,399
Accumulated deficit		(114,152	)		(112,652	)
Less: Treasury stock (6,201 shares in 2011 and 71 shares in 2010), at cost		(13	)		(1	)
		164,849			164,466
Accumulated other comprehensive income, net		5,228			1,833
TOTAL SHAREHOLDERS’ EQUITY		170,077			166,299
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,137,375		$	2,016,381

See notes to consolidated financial statement.

54

SEACOAST BANKING CORPORATION OF FLORIDA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

	For the Year Ended December 31
	2011			2010			2009
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received	$	81,904		$	85,584		$	102,138
Fees and commissions received		18,453			19,588			19,181
Interest paid		(16,211	)		(17,385	)		(28,507	)
Cash paid to suppliers and employees		(66,705	)		(70,329	)		(86,868	)
Income taxes (paid) received		(9	)		21,262			3,423
Origination of loans designated held for sale		(137,295	)		(173,692	)		(165,561	)
Sale of loans designated held for sale		143,019			179,585			158,628
Net change in other assets		585			(1,954	)		548
Net cash provided by operating activities		23,741			42,659			2,982
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of securities available for sale		115,287			134,088			94,202
Maturities of securities held for investment		7,733			6,601			10,800
Proceeds from sale of securities available for sale		52,689			102,369			92,686
Proceeds from sale of securities held for investment		—			5,452			—
Purchases of securities available for sale		(379,262	)		(275,839	)		(255,681	)
Purchases of securities held for investment		(1,526	)		(21,838	)		—
Net new loans and principal payments		(15,248	)		78,357			91,395
Proceeds from sale of loans		1,450			16,401			40,484
Proceeds from the sale of other real estate owned		38,075			9,169			5,582
Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank Stock		1,363			2,477			181
Purchase of Federal Home Loan Bank and Federal Reserve Bank Stock		(360	)		(700	)		(2,270	)
Additions to bank premises and equipment		(1,070	)		(552	)		(814	)
Net cash (used) provided by investing activities		(180,869	)		55,985			76,565
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits		81,517			(142,206	)		(30,994	)
Net increase (decrease) in federal funds purchased and repurchase agreements		38,039			(7,460	)		(51,823	)
Decrease in borrowings		—			—			(15,000	)
Issuance of common stock, net of related expense		—			47,127			82,553
Stock based employee benefit plans		123			180			174
Dividend reinvestment plan		—			20			31
Dividends paid on preferred shares		(6,875	)		—			(389	)
Dividends paid on common stock		—			—			(191	)
Net cash provided (used) by financing activities		112,804			(102,339	)		(15,639	)
Net (decrease) increase in cash and cash equivalents		(44,324	)		(3,695	)		63,908
Cash and cash equivalents at beginning of year		211,405			215,100			151,192
Cash and cash equivalents at end of year	$	167,081		$	211,405		$	215,100

See notes to consolidated financial statements.

55

SEACOAST BANKING CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

	Common Stock				Preferred Stock				Paid-in			Retained Earnings (Accumulated			Treasury			Accumulated Other Comprehensive
(Dollars and shares in thousands)	Shares		Amount		Shares		Amount		Capital/ Warrants			Deficit)			Stock			Income (Loss), Net			Total
BALANCE AT DECEMBER 31, 2008		19,172	$	1,928		2	$	43,787	$	99,788		$	70,278		$	(1,839	)	$	2,059		$	216,001
Comprehensive loss:
Net loss		—		—		—		—		—			(146,686	)		—			—			(146,686	)
Net unrealized gain on securities		—		—		—		—		—			—			—			1,399			1,399
Net reclassification adjustment		—		—		—		—		—			—			—			(1,450	)		(1,450	)
Comprehensive loss		—		—		—		—		—			—			—			—			(146,737	)
Cash dividends at $0.01 per common share		—		—		—		—		—			(191	)		—			—			(191	)
Cash dividends on preferred shares		—		—		—		—		—			(389	)		—			—			(389	)
Stock based compensation expense		—		—		—		—		401			—			—			—			401
Common stock issued for stock based employee benefit plans		10		—		—		—		(505	)		—			771			—			266
Dividend reinvestment plan		10		—		—		—		(182	)		—			213			—			31
Issuance of common stock		39,675		3,959		—		—		81,717			—			—			—			85,676
Clawback of one-half of warrants		—		—		—		—		(3,123	)		—			—			—			(3,123	)
Accretion on preferred stock discount		—		—		—		1,212		—			(1,212	)		—			—			—
BALANCE AT DECEMBER 31, 2009		58,867		5,887		2		44,999		178,096			(78,200	)		(855	)		2,008			151,935
Comprehensive loss:
Net loss		—		—		—		—		—			(33,203	)		—			—			(33,203	)
Net unrealized gain on securities		—		—		—		—		—			—			—			1,572			1,572
Net reclassification adjustment		—		—		—		—		—			—			—			(1,747	)		(1,747	)
Comprehensive loss		—		—		—		—		—			—			—			—			(33,378	)
Stock based compensation expense		—		—		—		—		351			—			—			—			351
Common stock issued for stock based employee benefit plans		145		9		—		—		(445	)		—			681			—			244
Dividend reinvestment plan		10		—		—		—		(154	)		—			173			—			20
Issuance of common stock		34,465		3,453		—		—		43,674			—			—			—			47,127
Accretion on preferred stock discount		—		—		—		1,249		—			(1,249	)		—			—			—
BALANCE AT DECEMBER 31, 2010		93,487		9,349		2		46,248		221,522			(112,652	)		(1	)		1,833			166,299
Comprehensive income:
Net income		—		—		—		—		—			6,667			—			—			6,667
Net unrealized gain on securities		—		—		—		—		—			—			—			3,612			3,612
Net reclassification adjustment		—		—		—		—		—			—			—			(217	)		(217	)
Comprehensive income		—		—		—		—		—			—			—			—			10,062
Cash dividends on preferred shares		—		—		—		—		—			(6,875	)		—			—			(6,875	)
Stock based compensation expense		—		—		—		—		273			—			—			—			273
Common stock issued for stock based employee benefit plans		1,200		120		—		—		253			(43	)		(12	)		—			318
Accretion on preferred stock discount		—		—		—		1,249		—			(1,249	)		—			—			—
BALANCE AT DECEMBER 31, 2011		94,687	$	9,469		2	$	47,497	$	222,048		$	(114,152	)	$	(13	)	$	5,228		$	170,077

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seacoast Banking Corporation of Florida and Subsidiaries

Note A     Significant Accounting Policies

General: Seacoast Banking Corporation of Florida (“Company”) is a single segment bank holding company with one operating subsidiary bank, Seacoast National Bank (“Seacoast National”, together the “Company”). Seacoast National’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 five 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, fair value of impaired loans, contingent liabilities, other real estate owned, valuation of deferred tax valuation alllowance and goodwill. Actual results could differ from those 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.

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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.

Seacoast National is a member of the Federal Home Loan Bank system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

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 ASC topics 310 and 470, when due to a deterioration in a borrower’s financial position, the Company grants concessions that would not otherwise be considered. Troubled debt restructured (TDR) loans are tested for impairment 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 ASC 310 “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 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

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(“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. 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 market value less costs to sell. At the time of the transfer to loans held for sale, if the fair market value is less than cost, the difference is recorded as additional provision for credit losses in the results of operations. Fair market 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, 2011 fair market 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 loan losses and net of any reserve for unfunded lending commitments. This cost basis is compared to the fair market 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 market value of loans held for sale are recorded in other fee income in the results of operations. Fair market 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.

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Fair Value Measurements:    The Company measures or monitors many of its assets and liabilities on a fair value basis. Certain assets and liabilities are measured on a recurring basis. 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.

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, over the estimated useful lives as follows: buildings — 25-40 years, leasehold improvements — 5-25 years, furniture and equipment — 3-12 years. Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Other Intangible Assets:    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. 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

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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.

If necessary, a specific allowance is established for individually evaluated impaired loans. The specific allowance established for these loans is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral depending on the most likely source of repayment. General allowances are established for loans grouped into pools based on similar characteristics. In this process, general allowance factors are based on an analysis of historical charge-off experience, portfolio trends, regional and national economic conditions, and expected loss given default derived from the Company’s internal risk rating process.

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:    The Company 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 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 ASC Topic 718 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

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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.

Note B     Recently Issued Accounting Standards, Not Adopted as of December 31, 2011

ASU No. 2011-05 — Amendments to Topic 220, Comprehensive Income. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company is evaluating its timing of adoption of ASU 2011-05, but will adopt the ASU retrospectively by the due date.

ASU 2011-08, “Intangibles — Goodwill and Other (Topic 350) — Testing Goodwill for Impairment.” ASU 2011-08 amends Topic 350, “Intangibles – Goodwill and Other,” to give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 is effective for annual and interim impairment tests beginning after December 15, 2011, and is not expected to have a significant impact on the Company’s financial statements.

ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” A repurchase agreement is a transaction in which a company sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. The determination of whether the transaction is accounted for as a sale or a collateralized financing is determined by assessing whether the seller retains effective control of the financial instrument. The ASU changes the assessment of effective control by removing the criterion that requires the seller to have the ability to repurchase or redeem financial assets with substantially the same terms, even in the event of default by the buyer and the collateral maintenance implementation guidance related to that criterion. The Company will apply the new guidance to repurchase agreements entered into or amended after January 1, 2012. The adoption of the ASU did not have a significant impact on the Company’s financial position, results of operations, or EPS.

ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” The ASU requires additional disclosures about financial instruments and derivative instruments that are offset or subject to an enforceable master netting arrangement or similar agreement. The ASU is effective for the interim reporting period ending March 31, 2013 with retrospective disclosure for all comparative periods presented. The Company is evaluating the impact of the ASU; however, it is not expected to materially impact the Company's financial position, results of operations, or EPS.

ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU is to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarifies how to apply existing fair value measurement and disclosure requirements. Further, the ASU requires additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU is effective for the interim reporting period ending March 31, 2012. The Company has adopted the standard as of January 1, 2012. The adoption did not have a significant impact on the Company’s financial position, results of operations, or EPS.

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Note C     Cash, Dividend and Loan Restrictions

In the normal course of business, the Company and Seacoast National 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:

Seacoast National is required to maintain average reserve balances with the Federal Reserve Bank. The average amount of those reserve balances was $18.3 million for 2011 and a nominal amount for 2010.

Under Federal Reserve regulation, Seacoast National 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, 2011, the maximum amount available for transfer from Seacoast National to the Company in the form of loans approximated $33.9 million.

The approval of the Office of the Comptroller of the Currency (“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 the Company as of December 31, 2011, without prior approval of the OCC.

Note D     Securities

The amortized cost and fair value of secuities available for sale and held for investment at December 31, 2011 and December 31, 2010 are summarized as follows:

	December 31, 2011
	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	$	1,699	$	25	$	—		$	1,724
Mortgage-backed securities of U.S. Government Sponsored Entities		135,665		2,819		(37	)		138,447
Collateralized mortgage obligations of U.S. Government Sponsored Entities		428,139		9,111		(316	)		436,934
Private collateralized mortgage obligations		73,247		330		(3,487	)		70,090
Obligations of state and political subdivisions		1,097		70		—			1,167
	$	639,847	$	12,355	$	(3,840	)	$	648,362
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	10,475	$	—	$	(136	)	$	10,339
Private collateralized mortgage obligations		1,840		40		—			1,880
Obligations of state and political subdivisions		6,662		570		—			7,232
Other		1,000		36		—			1,036
	$	19,977	$	646	$	(136	)	$	20,487

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	December 31, 2010
	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	$	4,192	$	20	$	—		$	4,212
Mortgage-backed securities of U.S. Government Sponsored Entities		120,439		1,218		(1,023	)	$	120,634
Collateralized mortgage obligations of U.S. Government Sponsored Entities		212,715		4,101		(1,357	)	$	215,459
Private collateralized mortgage obligations		90,428		1,325		(1,369	)	$	90,384
Obligations of state and political subdivisions		1,638		71		—		$	1,709
Other		2,742		—		—		$	2,742
	$	432,154	$	6,735	$	(3,749	)	$	435,140
SECURITIES HELD FOR INVESTMENT
Collateralized mortgage obligations of U.S. Government Sponsored Entities	$	15,423	$	85	$	—		$	15,508
Private collateralized mortgage obligations		3,540		79		—		$	3,619
Obligations of state and political subdivisions		7,398		69		(244	)	$	7,223
Other		500		3		—		$	503
	$	26,861	$	236	$	(244	)	$	26,853

Proceeds from sales of securities during 2011 were $52,689,000 with gross gains of $1,239,000 and gross losses of $19,000. Proceeds from sales of securities during 2010 were $107,821,000 with gross gains of $3,687,000. Proceeds from the sale of securities during 2009 were $92,686,000 with gross gains of $5,399,000.

Securities with a carrying value of $109,790,000 and a fair value of $109,793,000 at December 31, 2011, were pledged as collateral for United States Treasury deposits, other public deposits and trust deposits. Securities with a carrying and fair value of $171,951,000 were pledged as collateral for repurchase agreements.

The amortized cost and fair value of securities at December 31, 2011, 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	$	—	$	—	$	—	$	—
Due after one year through five years		127		127		1,699		1,724
Due after five years through ten years		1,503		1,632		1,097		1,167
Due after ten years		5,032		5,473		—		—
		6,662		7,232		2,796		2,891
Mortgage-backed securities of U.S. Government Sponsored Entities		—		—		135,665		138,447
Collateralized mortgage obligations of U.S. Government Sponsored Entities		10,475		10,339		428,139		436,934
Private collateralized mortgage obligations		1,840		1,880		73,247		70,090
No contractual maturity		1,000		1,036		—		—
	$	19,977	$	20,487	$	639,847	$	648,362

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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 flows analyses, using observable market data where available. The tables below indicate the amount of securities with unrealized losses and period of time for which these losses were outstanding at December 31, 2011 and December 31, 2010, respectively.

	December 31, 2011
	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	$	18,800	$	(37	)	$	—	$	—		$	18,800	$	(37	)
Collateralized mortgage obligations of U.S. Government Sponsored Entities		59,913		(452	)		—		—			59,913		(452	)
Private collateralized mortgage obligations		32,615		(2,001	)		27,282		(1,486	)		59,897		(3,487	)
Total temporarily impaired securities	$	111,328	$	(2,490	)	$	27,282	$	(1,486	)	$	138,610	$	(3,976	)

	December 31, 2010
	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	$	61,176	$	(1,023	)	$	—	$	—		$	61,176	$	(1,023	)
Collateralized mortgage obligations of U.S. Government Sponsored Entities		42,469		(1,357	)		—		—			42,469		(1,357	)
Private collateralized mortgage obligations		42,289		(631	)		14,214		(738	)		56,503		(1,369	)
Obligations of state and political subdivisions		4,273		(244	)		—		—			4,273		(244	)
Total temporarily impaired securities	$	150,207	$	(3,255	)	$	14,214	$	(738	)	$	164,421	$	(3,993	)

The Company owned individual investment securities of $138.6 million with aggregate gross unrealized losses at December 31, 2011. Based on a review of each of the securities in the investment securities portfolio at December 31, 2011, the Company concluded that it expected to recover the amortized cost basis of its investment.

Approximately $3.5 million of the unrealized losses pertain to super senior private label securities secured by collateral originated in 2005 and prior with a fair value of $59.9 million and were attributable to a combination of factors, including relative changes in interest rates since the time of purchase and decreased liquidity for investment securities in general. The collateral underlying these mortgage investments are 30- and 15-year fixed and 10/1 adjustable rate mortgage loans with low loan to values, subordination and historically have had minimal foreclosures and losses. Based on its assessment of these factors, management believes that the unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality.

At December 31, 2011, the Company also had $489,000 of unrealized losses on mortgage backed securities of government sponsored entities having a fair value of $78.7 million that were attributable to a combination of factors, including relative changes in interest rates since the time of purchase and decreased liquidity for investment securities in general. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on its assessment of these factors , management believes that the unrealized losses on these debt security holdings are a function of changes in investment spreads and interest movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities.

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As of December 31, 2011, the Company does not intend to sell nor is it anticipated that it would be required to sell any of its investment securities that have losses. Therefore, management does not consider any investment to be other-than-temporarily impaired at December 31, 2011.

Included in other assets is $11.9 million of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value. At December 31, 2011, the Company has not identified events or changes in circumstances which may have a significant adverse effect on the fair value of the $11.9 million of cost method investment securities.

Note E     Loans

Information relating to loans at December 31 is summarized as follows:

	2011		2010
	(In thousands)
Construction and land development	$	49,184	$	79,306
Commercial real estate		508,353		543,603
Residential real estate		546,246		516,994
Commerical and financial		53,105		48,825
Consumer		50,611		51,602
Other		575		278
NET LOAN BALANCES	$	1,208,074	$	1,240,608

(1)   Net loan balances at December 31, 2011 and 2010 are net of deferred costs of $1,632,000 and $973,000, respectively.

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 $5,736,000 and $5,332,000 at December 31, 2011 and 2010, respectively. During 2011 new loans totaling $2,421,000 were made and reductions totaled $2,017,000.

At December 31, 2011 and 2010, loans pledged as collateral for borrowings totaled $55.0 million for each year, respectively. At December 31, 2011 no loans were pledged as collateral for letters of credit with the Federal Home Loan Bank (“FHLB”), versus $47.3 million in loans at December 31, 2010.

Loans are made to individuals as well as commercial and tax exempt entities. Specific loan terms vary as to interest rate, repayment, and collateral requirements based on the type of loan requested and the credit worthiness of the prospective borrower.

Concentrations of Credit    All of the Company’s lending activity occurs within the State of Florida, including Orlando in Central Florida and Southeast coastal counties from Brevard County in the North to Palm Beach County in the south, as well as all of the counties surrounding Lake Okeechobee in the center of the state. The Company’s loan portfolio consists of approximately one half commercial and commercial real estate loans and one half consumer and residential real estate loans.

The Company’s extension of credit is governed by the Credit Risk Policy which was established to control the quality of the Company’s loans. These policies and procedures are reviewed and approved by the Board of Directors on a regular basis.

Construction and Land Development Loans    The Company defines construction and land development loans as exposures secured by land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or significant source of repayment is from rental income associated with that property (that is, loans for which 50 percent 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.

Commercial Real Estate Loans    The Company’s goal is to create and maintain a high quality portfolio of commercial real estate loans with customers who meet the quality and relationship profitability objectives of the company. Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. These loans are viewed primarily as cash flow loans and the repayment of these

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loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

Residential Real Estate Loans    The Company selectively adds residential mortgage loans to its portfolio, primarily loans with adjustable rates, home equity mortgages and home equity lines. Substantially all residential originations have been underwritten to conventional loan agency standards, including loans having balances that exceed agency value limitations. The Company has never offered sub-prime, Alt A, Option ARM or any negative amortizing residential loans, programs or products, although we have originated and hold residential mortgage loans from borrowers with original or current FICO credit scores that are less than “prime.”

Commercial and Financial Loans    Commercial credit is extended primarily to small to medium sized professional firms, retail and wholesale operators and light industrial and manufacturing concerns. Such credits typically comprise working capital loans, loans for physical asset expansion, asset acquisition and other business loans. Loans to closely held businesses will generally be guaranteed in full or for a meaningful amount by the businesses major owners. Commercial loans are made based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Minimum standards and underwriting guidelines have been established for all commercial loan types.

Consumer Loans    The Company originates consumer loans including installment loans, loans for automobiles, boats, and other personal, family and household purposes, and indirect loans through dealers to finance automobiles. For each loan type several factors including debt to income, type of collateral and loan to collateral value, credit history and Company relationship with the borrower is considered during the underwriting process.

The following tables present the contractual aging of the recorded investment in past due loans by class of loans as of December 31, 2011 and 2010:

					Accruing
	Accruing		Accruing		Greater						Total
	30-59 Days		60-89 Days		Than						Financing
December 31, 2011	Past Due		Past Due		90 Days		Nonaccrual		Current		Receivables
					(In thousands)
Construction and land development	$	6	$	215	$	—	$	2,227	$	46,736	$	49,184
Commercial real estate		836		—		—		13,120		494,397		508,353
Residential real estate		2,979		607		—		12,555		530,105		546,246
Commerical and financial		80		—		—		16		53,009		53,105
Consumer		246		74		—		608		49,683		50,611
Other		—		—		—		—		575		575
Total	$	4,147	$	896	$	—	$	28,526	$	1,174,505	$	1,208,074

					Accruing
	Accruing		Accruing		Greater						Total
	30-59 Days		60-89 Days		Than						Financing
December 31, 2010	Past Due		Past Due		90 Days		Nonaccrual		Current		Receivables
					(In thousands)
Construction and land development	$	147	$	20	$	—	$	29,229	$	49,910	$	79,306
Commercial real estate		76		—		—		19,101		524,426		543,603
Residential real estate		3,493		598		—		14,810		498,093		516,994
Commerical and financial		70		1		—		4,607		44,147		48,825
Consumer		410		176		—		537		50,479		51,602
Other		—		—		—		—		278		278
Total	$	4,196	$	795	$	—	$	68,284	$	1,167,333	$	1,240,608

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Nonaccrual loans and loans past due ninety days or more were $28.5 million and $68.3 million at December 31, 2011 and 2010, respectively. The reduction in interest income associated with loans on nonaccrual status was approximately $1.2 million, $5.1 million, and $6.6 million, for the years ended December 31, 2011, 2010, and 2009, respectively.

The Company utilizes an internal asset classification system as a means of reporting problem and potential problem loans. Under the Company’s risk rating system, the Company classifies problem and potential problem loans as “Special Mention,” “Substandard,” and “Doubtful” and these loans are monitored on an ongoing basis. Substandard loans include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as substandard may require a specific allowance, but generally does not exceed 30% of the principal balance. Loans classified as Doubtful, have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans classified as doubtful generally have specific allowances in excess of 30% of the principal balance. Loans that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that deserve management’s close attention are deemed to be Special Mention. Risk ratings are updated any time the situation warrants.

Loans not meeting the criteria above are considered to be pass-rated loans and risk grades are recalculated at least annually by the loan relationship manager. The following tables present the risk category of loans by class of loans based on the most recent analysis performed and the contractual aging as of December 31, 2011 and 2010:

	Construction						Commercial
	& Land		Commercial		Residential		and		Consumer
December 31, 2011	Development		Real Estate		Real Estate		Financial		Loans		Total
					(In thousands)
Pass	$	42,899	$	387,161	$	505,316	$	51,375	$	49,299	$	1,036,050
Special mention		802		57,334		5,529		1,445		523		65,633
Substandard		90		5,558		133		168		305		6,254
Doubtful		—		—		—		—		—		—
Nonaccrual		2,227		13,120		12,555		16		608		28,526
Troubled debt restructures		3,166		45,180		22,713		101		451		71,611
	$	49,184	$	508,353	$	546,246	$	53,105	$	51,186	$	1,208,074

	Construction						Commercial
	& Land		Commercial		Residential		and		Consumer
December 31, 2010	Development		Real Estate		Real Estate		Financial		Loans		Total
					(In thousands)
Pass	$	41,650	$	390,792	$	473,525	$	41,966	$	49,643	$	997,576
Special mention		265		70,810		1,441		1,866		693		75,075
Substandard		4,140		23,214		5,410		283		276		33,323
Doubtful		—		—		—		—		—		—
Nonaccrual		29,229		19,101		14,810		4,607		537		68,284
Troubled debt restructures		4,022		39,686		21,808		103		731		66,350
	$	79,306	$	543,603	$	516,994	$	48,825	$	51,880	$	1,240,608

Note F    Impaired Loans and Allowance for Loan Losses

During the third quarter of 2011, the Company adopted Accounting Standards Update (ASU) 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (“TDR”) (Topic 310), which modified guidance for identifying restructurings of receivables that constitute a TDR. As a result of adopting the provisions of ASU 2011-02, the Company reassessed all loan modifications that occurred after December 31, 2010 for identification as TDRs. The Company did not identify any loans that were previously

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measured under general allowance for credit losses methodology as TDRs. The Company adopted the provisions of the ASU that require impaired loan accounting and reporting for newly identified TDRs as of July 1, 2011. During 2011, the total of newly identified TDRs was $31.2 million, of which $0.3 million were accruing construction and land development loans, $6.4 million were accruing residential real estate mortgages, $20.7 million were accruing commercial real estate loans, and $0.2 million were accruing consumer loans. Loans modified, but where full collection under the modified terms is doubtful, are classified as nonaccrual loans from the date of modification and are therefore excluded from the tables below.

The Company's TDR concessions granted generally do not include forgiveness of principal balances. Loan modifications are not reported in calendar years after modification if the loans were modified at an interest rate equal to the yields of new loan originations with comparable risk and the loans are performing based on the terms of the restructuring agreements.

When a loan is modified as a TDR, there is not a direct, material impact on the loans within the Consolidated Balance Sheet, as principal balances are generally not forgiven. All loans prior to modification were classified as an impaired loan and the allowance for loan losses is determined in accordance with its policy as disclosed in Note A. The following table presents loans that were modified within the twelve months ending December 31, 2011:

			Pre-		Post-
			Modification		Modification
	Number		Outstanding		Outstanding		Specific		Valuation
	of		Recorded		Recorded		Reserve		Allowance
	Contracts		Investment		Investment		Recorded		Recorded
			(Dollars in Thousands)
Construction and land development		6	$	340	$	335	$	—	$	6
Residential real estate		29		6,408		6,221		—		188
Commercial real estate		12		20,694		19,027		—		1,667
Commercial and financial		1		9		8		—		—
Consumer		4		187		156		—		30
		52	$	27,638	$	25,747	$	—	$	1,891

Accruing loans that were restructured within the twelve months ending December 31, 2011 and defaulted during the twelve months ended December 31, 2011 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 days or more delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned. A defaulted TDR is generally placed on nonaccrual and specific allowance for loan loss is assigned in accordance with the Company's policy as disclosed in note A.

	Number of Contracts		Recorded Investment
	(Dollars in Thousands)
Construction and land development		1	$	37
Residential real estate		1		220
Commercial real estate		—		—
Commercial and financial		1		8
Consumer		—		—
		3	$	265

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At December 31, 2011 and 2010, the Company's recorded investment in impaired loans and related valuation allowance was as follows:

	Impaired Loans
	for the Year Ended December 31, 2011
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
With no related allowance recorded:
Construction and land development	$	1,616	$	2,431	$	—	$	2,527	$	14
Commercial real estate		19,101		22,219		—		21,221		425
Residential real estate		9,128		13,442		—		8,752		155
Commercial and financial		16		16		—		774		2
Consumer		481		523		—		417		2
With an allowance recorded:
Construction and land development		3,777		4,131		375		13,699		153
Commercial real estate		39,199		39,824		3,385		44,369		1,843
Residential real estate		26,140		26,940		3,099		26,869		913
Commercial and financial		101		101		8		154		3
Consumer		578		584		112		746		31
Total:
Construction and land development		5,393		6,562		375		16,226		167
Commercial real estate		58,300		62,043		3,385		65,590		2,268
Residential real estate		35,268		40,382		3,099		35,621		1,068
Commercial and financial		117		117		8		928		5
Consumer		1,059		1,107		112		1,163		33
	$	100,137	$	110,211	$	6,979	$	119,528	$	3,541

	Impaired Loans
	for the Year Ended December 31, 2010
			Unpaid		Related		Average		Interest
	Recorded		Principal		Valuation		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
With no related allowance recorded:
Construction and land development	$	3,826	$	9,243	$	—			$	29
Commercial real estate		22,365		27,962		—				382
Residential real estate		9,731		14,561		—				54
Commercial and financial		4,607		4,721		—				—
Consumer		5		5		—				1
With an allowance recorded:
Construction and land development		29,425		32,232		5,076				211
Commercial real estate		36,421		42,173		5,404				1,198
Residential real estate		26,887		27,188		3,640				741
Commercial and financial		104		104		9				—
Consumer		1,263		1,271		233				55
Total:
Construction and land development		33,251		41,475		5,076	$	51,583		240
Commercial real estate		58,786		70,135		5,404		61,448		1,580
Residential real estate		36,618		41,749		3,640		31,174		795
Commercial and financial		4,711		4,825		9		3,016		—
Consumer		1,268		1,276		233		1,837		56
	$	134,634	$	159,460	$	14,362	$	149,058	$	2,671

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Impaired loans also include loans that have been modified in troubled debt restructurings (“TDRs”) where concessions to borrowers who experienced financial difficulties have been granted. At December 31, 2011 and 2010, accruing TDRs totaled $71.6 million and $66.4 million, respectively.

In March 2012, the Company concluded that the lead bank in a $14.6 million participation classified as a TDR may not renew their borrower’s loan, and instead proceed with foreclosure when the loan matures in November 2012. These facts could alter the loan’s status as an accruing TDR in the first quarter 2012, at which point management expects that an additional valuation allowance of approximately $2.1 million would be recorded.

The valuation allowance is included in the allowance for loan losses. The average recorded investment in impaired loans for the years ended December 31, 2011, 2010 and 2009 was $119,528,000, $149,058,000 and $137,295,000, 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 years ended December 31, 2011, 2010 and 2009, the Company recorded $3,541,000, $2,671,000 and $708,000, respectively, in interest income on impaired loans.

The nonaccrual loans and accruing loans past due 90 days or more were $28,526,000 and $0, respectively, at December 31, 2011, $68,284,000 and $0. respectively at the end of 2010, and were $97,876,000 and $156,000, respectively, at year-end 2009.

Transactions in the allowance for loans losses for the three years ended December 31, 2011, 2010 and 2009 are summarized as follows:

December 31 , 2011	Beginning Balance		Provision for Loan Losses			Charge- Offs			Recoveries		Net Charge- Offs			Ending Balance
	(In thousands)
Construction and land development	$	7,214	$	(1,645	)	$	(4,739	)	$	1,053	$	(3,686	)	$	1,883
Commercial real estate		18,563		(3,777	)		(3,663	)		354		(3,309	)		11,477
Residential real estate		10,102		7,833			(7,482	)		513		(6,969	)		10,966
Commercial and financial		480		(379	)		—			301		301			402
Consumer		1,385		(58	)		(562	)		72		(490	)		837
	$	37,744	$	1,974		$	(16,446	)	$	2,293	$	(14,153	)	$	25,565
December 31, 2010	$	45,192	$	31,680		$	(41,628	)	$	2,500	$	(39,128	)	$	37,744
December 31, 2009	$	29,388	$	124,767		$	(110,826	)	$	1,863	$	(108,963	)	$	45,192

As discussed in Note A, “Significant Accounting Policies,” the allowance for loan losses is composed of specific allowances for certain impaired loans and general allowances grouped into loan pools based on similar characteristics. The Company's loan portfolio and related allowance at December 31, 2011 and 2010 is shown in the following tables.

	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
December 31, 2011	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)
Construction and land development	$	5,393	$	375	$	43,791	$	1,508	$	49,184	$	1,883
Commercial real estate		58,300		3,385		450,053		8,092		508,353		11,477
Residential real estate		35,268		3,099		510,978		7,867		546,246		10,966
Commercial and financial		117		8		52,988		394		53,105		402
Consumer		1,059		112		50,127		725		51,186		837
	$	100,137	$	6,979	$	1,107,937	$	18,586	$	1,208,074	$	25,565

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	Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Total
December 31, 2010	Carrying Value		Associated Allowance		Carrying Value		Associated Allowance		Carrying Value		Associated Allowance
	(In thousands)
Construction and land development	$	33,251	$	5,076	$	46,055	$	2,138	$	79,306	$	7,214
Commercial real estate		58,786		5,404		484,817		13,159		543,603		18,563
Residential real estate		36,618		3,640		480,376		6,462		516,994		10,102
Commercial and financial		4,711		9		44,114		471		48,825		480
Consumer		1,268		233		50,612		1,152		51,880		1,385
	$	134,634	$	14,362	$	1,105,974	$	23,382	$	1,240,608	$	37,744

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, 2011
Premises (including land of $8,883)	$	48,691	$	(18,710	)	$	29,981
Furniture and equipment		21,300		(17,054	)		4,246
	$	69,991	$	(35,764	)	$	34,227
December 31, 2010
Premises (including land of $8,883)	$	48,522	$	(17,528	)	$	30,994
Furniture and equipment		21,080		(16,029	)		5,051
	$	69,602	$	(33,557	)	$	36,045

In accordance with the provisions of ASC Topic 360-10, the impairment or disposal of long-lived assets held for sale with a carrying amount of $2.4 million were written down to their fair value of $1.4 million based on appraised values less selling costs resulting in losses of $228,000 and $753,000, respectively, for 2010 and 2009 which was included in the consolidated statement of operations as “net loss on other estate owned and repossessed assets”. These assets were sold in 2011.

Note H    Other Intangible Assets

The gross carrying amount and accumulated amortization of the Company's intangible asset subject to amortization at December 31, 2011 and 2010, is presented below.

	December 31, 2011					December 31, 2010
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
	(In thousands)
Deposit base intangible	$	9,494	$	(7,205	)	$	9,494	$	(6,357	)
	$	9,494	$	(7,205	)	$	9,494	$	(6,357	)

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Intangible amortization expense related to the deposit base intangible for each of the years in the three-year period ended December 31, 2011, is presented below.

	Year Ended December 31
	2011		2010		2009
	(In thousands)
Intangible Amortization
Identified intangible assets
Deposit base	$	847	$	985	$	1,259

The estimated annual amortization expense for the deposit base intangible determined using the straight line method in each of the five years subsequent to December 31, 2011, is as follows (in thousands): 2012, $788; 2013, $783; 2014, $718; and zero thereafter.

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:

	2011			2010			2009
	(In thousands)
Maximum amount outstanding at any month end	$	154,440		$	125,920		$	158,815
Weighted average interest rate at end of year		0.22	%		0.25	%		0.26	%
Average amount outstanding	$	106,495		$	87,106		$	117,171
Weighted average interest rate during the year		0.26	%		0.27	%		0.37	%

During 2007, the Company obtained advances from the Federal Home Loan Bank (FHLB) of $25,000,000 each on September 25, 2007 and November 27, 2007. The advances mature on September 15, 2017 and November 27, 2017, respectively, and have fixed rates of 3.64 percent and 2.70 percent at December 31, 2011, 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.

Seacoast National has unused secured lines of credit of $819,174,000 at December 31, 2011.

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 $12.0 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 2.33 percent, 1.88 percent, and 1.90 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 or upon occurrence of certain events affecting their tax or regulatory capital treatment. 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

73

on its capital stock or purchase or acquire any of its capital stock. The Company executed its right to defer interest payments on the notes beginning May 19, 2009 and as a result no common or preferred stock dividends could be paid. At December 31, 2010, the accumulated deferred interest payments on trust preferred securities was $2.0 million. During the third quarter of 2011, the Company remitted accumulated deferred interest payments of $2,426,000. As of December 31, 2011, all interest payments on trust preferred securities are current.

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. 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, $52.0 million in trust preferred securities issued by the Trusts are included in the Tier 1 capital of the Company at December 31, 2011, as allowed by Federal Reserve guidelines.

Through April 13, 2011 and all of 2010, the Company's banking subsidiary utilized $43.0 million in letters of credit issued by the FHLB to satisfy a portion of its pledging requirement to transact business as a qualified public depository within the state of Florida. The letters of credit had a term of one year with an annual fee equivalent of eight basis points, or approximately $34,000. The letters of credit were terminated on April 13, 2011.

Note J    Employee Benefits and Stock Compensation

The Company’s profit sharing and retirement plan covers substantially all employees after one year of service and 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 and retirement contributions charged to operations were $361,000 in 2011, $373,000 in 2010, and $417,000 in 2009.

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 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, 2011; no options or SSARs have been issued under the 2008 plan. Under the 2000 plan the Company issued 17,000 shares of restricted stock awards at $1.90 per share during 2010. Under the 2008 plan the Company issued 1,143,400 of restricted stock awards at $1.42 per share during 2011. Under the plans, the options, stock awards or SSARs exercise price equals the common stock’s market price on the date of the grant. All options or SSARs issued after December 31, 2002 have a vesting period of five years and a contractual life of ten years. All stock awards have a contractual life of three or five 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 150,000. Under TARP and Federal Reserve policy, the Company’s stock repurchases are limited.

The Company did not grant any stock options or SSARS in 2011, 2010 or 2009. 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.

74

The following table presents a summary of stock option and SSARs activity for the years ended December 31, 2011, 2010 and 2009:

	Number of Shares			Option or SSAR  Price Per Share		Weighted Average Exercise Price		Aggregate Intrinsic Value
Dec. 31, 2008		611,000		$	7.46 — 27.36	$	21.06	$	0
Granted		0			0		0
Exercised		0			0		0
Expired		0			0		0
Cancelled		(53,000	)		8.22 — 26.72		19.60
Dec. 31, 2009		558,000			7.46 — 27.36		21.21		0
Granted		0			0		0
Exercised		0			0		0
Expired		0			0		0
Cancelled		(11,000	)		7.46 — 26.72		11.88
Dec. 31, 2010		547,000			17.08 — 27.36		21.39		0
Granted		0			0		0
Exercised		0			0		0
Expired		0			0		0
Cancelled		(12,000	)		17.08 — 26.72		20.14
Dec. 31, 2011		535,000			17.08 — 27.36		21.42		0

No stock options were exercised during 2011. No windfall tax benefits were realized from the exercise of 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, 2011:

Options / SSARs Outstanding		Options / SSARs Exercisable (Vested)
Number of Shares Outstanding	Weighted Average Remaining Contractual Life in Years	Number of Shares Exercisable	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
535,000	3.89	475,000	21.32	3.72	$0

Adjusting for potential forfeiture experience, non-vested stock options and SSARs for 53,000 shares were outstanding at December 31, 2011 and are as follows:

Number of Non-Vested Stock Options and SSARs	Weighted Average Remaining Contractual Life In Years	Weighted Average Fair Value	Remaining Unrecognized Compensation Cost	Weighted Average Remaining Recognition Period in Years
53,000	5.25	4.21	$61,000	0.25

Since December 31, 2010, restricted stock awards of 1,143,000 shares were issued, 10,000 awards have vested and 85,000 awards were cancelled. Of the 1,143,000 shares issued in 2011, 352,000 shares were dependent of the Company achieving a minimum return on equity during a five year period. Non-vested restricted stock awards totaling 1,086,000 shares were outstanding at December 31, 2011, 1,048,000 greater than at December 31, 2010, and are as follows:

Number of Non-Vested Restricted Stock Award Shares	Remaining Unrecognized Compensation Cost	Weighted Average Remaining Recognition Period in Years
1,086,000	$1,526,000	3.93

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In 2011, 2010 and 2009 the Company recognized $588,000 ($361,000 after tax), $493,000 ($303,000 after tax) and $580,000 ($357,000 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 the lease. At December 31, 2011, future minimum lease payments under leases with initial or remaining terms in excess of one year are as follows:

	(In thousands)
2012	$	3,427
2013		2,904
2014		2,681
2015		2,333
2016		2,225
Thereafter		14,577
	$	28,147

Rent expense charged to operations was $4,010,000 for 2011, $3,951,000 for 2010 and $4,257,000 for 2009. Certain leases contain provisions for renewal and change with the consumer price index.

Certain property was leased for $312,000 in 2009 from a former Bank director of the Company who retired.

Note L    Income Taxes

The benefit for income taxes is as follows:

	Year Ended December 31
	2011			2010			2009
	(In thousands)
Current
Federal	$	—		$	29		$	812
State		10			24			(4	)
Deferred
Federal		—			(29	)		(10,488	)
State		(10	)		(24	)		(2,145	)
	$	—		$	—		$	(11,825	)

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The difference between the total expected tax benefit (computed by applying the U.S. Federal tax rate of 35% to pretax income in 2011, 2010 and 2009) and the reported income tax benefit relating to loss before income taxes is as follows:

	Year Ended December 31
	2011			2010			2009
	(In thousands)
Tax rate applied to income (loss) before income taxes	$	2,333		$	(11,622	)	$	(55,479	)
Increase (decrease) resulting from the effects of:
Goodwill impairment		—			—			17,435
Tax exempt interest on obligations of states and political subdivisions		(143	)		(177	)		(168	)
State income taxes		(173	)		506			1,868
Stock compensation		132			150			179
Other		281			174			1,108
Federal tax benefit before valuation allowance		2,430			(10,969	)		(35,057	)
State tax benefit before valuation allowance		494			(1,666	)		(6,419	)
Total income tax benefit		2,924			(12,635	)		(41,476	)
Change in valuation allowance		(2,924	)		12,635			29,651
Income tax benefit	$	—		$	—		$	(11,825	)

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

	December 31
	2011			2010
	(In thousands)
Allowance for loan losses	$	10,372		$	15,304
Other real estate owned		4,009			4,690
Capital losses		384			386
Accrued stock compensation		417			351
Federal tax loss carryforward		42,235			39,973
State tax loss carryforward		8,010			7,961
Alternative minimum tax carryforward		1,304			1,304
Deferred compensation		1,202			1,034
Other		306			437
Gross deferred tax assets		68,239			71,440
Less: Valuation allowance		(44,938	)		(47,862	)
Deferred tax assets net of valuation allowance		23,301			23,578
Depreciation		(1,694	)		(1,909	)
Deposit base intangible		(843	)		(1,172	)
Net unrealized securities gains		(3,287	)		(1,152	)
Accrued interest and fee income		(661	)		(394	)
Gross deferred tax liabilities		(6,485	)		(4,627	)
Net deferred tax assets	$	16,816		$	18,951

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Although realization is not assured, the Company believes that the realization of the recognized net deferred tax asset of $16.8 million is more likely than not based on expectations as to future taxable income and available tax planning strategies, as defined in ASC 740, that could be implemented if necessary to prevent a carryforward from expiring. The Company's net deferred tax asset (DTA) of $16.8 million consists of approximately $48.0 million of net U.S. federal DTAs, $13.7 million of net state DTAs, a $34.1 million federal DTA valuation allowance, and a $10.8 million state DTA valuation allowance.

As a result of the losses incurred in 2008, the Company reached a three-year cumulative pretax loss position at December 31, 2008. Losses in 2009 and 2010 added to this cumulative loss position that is considered significant negative evidence in assessing the realizability of a DTA. Earnings for 2011 provides initial positive evidence that may be used prospectively to offset the negative evidence in addition to 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 $137 million of taxable income during the respective carryforward periods to fully realize its federal DTAs, and $249 million to realize state DTAs. The Company believes only a portion of the federal and state DTAs can be realized from tax planning strategies and a forecast of taxable earnings; therefore, a valuation allowance of $34.1 million and $10.8 million was recorded, respectively, for federal and state DTAs. The amount of the DTA considered realizable, however, could be reduced if estimates of future taxable income during the carryforward period are lower than forecasted due to further deterioration in market conditions.

The federal and state net operating loss carryforwards expire in annual installments beginning in 2029 and run through 2031.

The Company recognizes interest and penalties related, as appropriate, as part of the provisioning for income taxes. No interest or penalties were accrued at December 31, 2011.

The Company has no unrecognized income tax benefits or provisions due to uncertain income tax positions. The Internal Revenue Service (IRS) examined the federal income tax returns for the years 2006, 2007, 2008 and 2009. The IRS did not propose any adjustments related to this examination. The following are the major tax juris- dictions in which the Company operates and the earliest tax year subject to examination:

Jurisdiction	Tax Year
United States of America		2010
Florida		2008

Income taxes related to securities transactions were $471,000, $1,422,000 and $2,083,000 in 2011, 2010 and 2009, respectively.

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Note M    Noninterest Income and Expenses

Details of noninterest income and expense follow:

	Year Ended December 31
	2011		2010		2009
	(In thousands)
Noninterest income
Service charges on deposit accounts	$	6,262	$	5,925	$	6,491
Trust fees		2,111		1,977		2,098
Mortgage banking fees		2,140		2,119		1,746
Brokerage commissions and fees		1,122		1,174		1,416
Marine finance fees		1,209		1,334		1,153
Interchange income		3,808		3,163		2,613
Other deposit based EFT fees		318		321		331
Other		1,375		2,121		1,647
		18,345		18,134		17,495
Securities gains, net		1,220		3,687		5,399
TOTAL	$	19,565	$	21,821	$	22,894
Noninterest expense
Salaries and wages	$	27,288	$	26,408	$	26,693
Employee benefits		5,875		5,717		6,109
Outsourced data processing costs		6,583		5,981		5,623
Telephone / data lines		1,179		1,505		1,835
Occupancy		7,627		7,480		8,260
Furniture and equipment		2,291		2,398		2,649
Marketing		2,917		2,910		2,067
Legal and professional fees		6,137		7,977		6,984
FDIC assessments		3,013		3,958		4,952
Amortization of intangibles		847		985		1,259
Asset dispositions expense		2,281		2,268		1,172
Net loss on other real estate owned and repossessed assets		3,751		13,541		5,155
Goodwill impairment		0		0		49,813
Other		7,974		8,428		7,656
TOTAL	$	77,763	$	89,556	$	130,227

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Note N    Shareholders’ Equity

The Company has reserved 730,000 common shares for issuance in connection with an employee stock purchase plan and 742,500 common shares for issuance in connection with an employee profit sharing plan. At December 31, 2011 an aggregate of 626,899 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 and a 10-year warrant to purchase approximately 589,625 shares of common stock at an exercise price of $6.36 per share. The proceeds received were allocated to the preferred stock and additional paid-in-capital based on their relative fair values. The 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. 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.

The fair value of the warrants were calculated using 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

Beginning in the third quarter of 2008, we reduced our dividend per share of our common stock to $0.01 and, as of May 19, 2009, we suspended the payment of dividends, as described below. On May 19, 2009, our board of directors decided to suspend regular quarterly cash dividends on our outstanding common stock and Series A Preferred Stock pursuant to a request from the Federal Reserve as a result of recently adopted Federal Reserve policies related to dividends and other distributions. On August 15, 2011, the Federal Reserve approved payment of deferred dividends on the Series A Preferred Stock. As a result, we remitted a payment of $6,614,000. As of December 31, 2011, dividend payments for Series A Preferred Stock are current.

A stock offering was completed during April of 2010 adding $50 million of Series B Mandatorily Convertible Nonvoting Preferred Stock (“Series B Preferred Stock”) as permanent capital, resulting in approximately $47.1 million in additional Tier 1 risk-based equity, net of issuance costs. The shares of Series B Preferred Stock were mandatorily convertible into common shares five days subsequent to shareholder approval, which was granted at the Company’s annual meeting on June 22, 2010. Upon the conversion of the Series B Preferred Stock, approximately 34,465,000 shares of the Company’s common stock were issued pursuant to the Investment Agreement, dated as of April 8, 2010 between the Company and the investors.

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 no shares from treasury stock during 2011 and approximately 10,000 shares from treasury stock during 2010.

A company that participates in the TARP must adopt certain standards for executive compensation, including (a) prohibiting “golden parachute” payments as defined in the Emergency Economic Stabilization Act of 2008 (EESA) to senior executive officers; (b) requiring recovery of any compensation paid to senior executive officers based on criteria that is later proven to be materially inaccurate; (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the financial institution, and (d) accepting restrictions on the payment of dividends and the repurchase of common stock. As of December 31, 2011, Seacoast believes it is in compliance with all TARP standards and restrictions.

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Required Regulatory Capital

						Minimum for Capital Adequacy Purpose					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
SEACOAST BANKING CORP (CONSOLIDATED)
At December 31, 2011:
Total Capital (to risk-weighted assets)	$	230,303		18.77	%	$	98,124	³	8.00	%		N/A		N/A
Tier 1 Capital (to risk-weighted assets)		214,844		17.51			49,062	³	4.00	%		N/A		N/A
Tier 1 Capital (to adjusted average assets)		214,844		10.31			83,338	³	4.00	%		N/A		N/A
At December 31, 2010:
Total Capital (to risk-weighted assets)	$	221,130		17.84	%	$	99,140	³	8.00	%		N/A		N/A
Tier 1 Capital (to risk-weighted assets)		205,364		16.57			49,570	³	4.00	%		N/A		N/A
Tier 1 Capital (to adjusted average assets)		205,364		10.25			80,092	³	4.00	%		N/A		N/A
SEACOAST NATIONAL BANK (A WHOLLY OWNED BANK SUBSIDIARY)
At December 31, 2011:
Total Capital (to risk-weighted assets)	$	219,177		17.89	%	$	97,992	³	8.00	%	$	122,490	³	10.00	%
Tier 1 Capital (to risk-weighted assets)		203,739		16.63			48,996	³	4.00	%		73,494	³	6.00	%
Tier 1 Capital (to adjusted average assets)		203,739		9.79			83,275	³	4.00	%		104,094	³	5.00	%
At December 31, 2010:
Total Capital (to risk-weighted assets)	$	201,699		16.29	%	$	99,008	³	8.00	%	$	123,761	³	10.00	%
Tier 1 Capital (to risk-weighted assets)		185,953		15.02			49,504	³	4.00	%		74,256	³	6.00	%
Tier 1 Capital (to adjusted average assets)		185,953		9.29			80,024	³	4.00	%		100,030	³	5.00	%

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, 2011, that the Company meets all capital adequacy requirements to which it is subject.

The Company is well capitalized under the regulatory framework for prompt corrective action. 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, 2011, the Company’s deposit-taking bank subsidiary met the capital and leverage ratio requirements for well capitalized banks.

The Office of the Comptroller of the Currency (“OCC”) and Seacoast National agreed by letter agreement that Seacoast National shall maintain specific minimum captial ratios, including a total risk-based capital ratio of 12.00 percent and a Tier 1 leverage ratio of 8.50 percent. The agreement with the OCC as to minimum capital ratios does not change the Bank's status as “well-capitalized” for bank regulatory purposes.

81

Note O

Seacoast Banking Corporation of Florida

(Parent Company Only) Financial Information

Balance Sheets

	December 31
	2011		2010
	(In thousands)
ASSETS
Cash	$	7,781	$	17,944
Securities purchased under agreement to resell with subsidary bank, maturing within 30 days		3,344		3,629
Investment in subsidiaries		212,583		200,498
Other assets		14		10
	$	223,722	$	222,081
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debt	$	53,610	$	53,610
Other liabilities		35		2,172
Shareholders’ equity		170,077		166,299
	$	223,722	$	222,081

Statements of Income (Loss)

	Year Ended December 31
	2011			2010			2009
	(In thousands)
Income
Dividends from subsidiary Bank	$	—		$	—		$	—
Interest/other		79			12			12
		79			12			12
Interest expense		1,152			1,187			1,365
Other expenses		405			879			521
Loss before income tax benefit and equity in undistributed income (loss) of subsidiaries		(1,478	)		(2,054	)		(1,874	)
Income tax benefit		—			—			656
Loss before equity in undistributed income (loss) of subsidiaries		(1,478	)		(2,054	)		(1,218	)
Equity in undistributed income (loss) of subsidiaries		8,145			(31,149	)		(145,468	)
Net income (loss)	$	6,667		$	(33,203	)	$	(146,686	)

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Statement of Cash Flows

	Year Ended December 31
	2011			2010			2009
	(In thousands)
Cash flows from operating activities
Interest received	$	9		$	12		$	12
Interest paid		(3,288	)		—			(440	)
Dividends received		70			—			—
Income taxes paid		(67	)		63			687
Other		(420	)		(893	)		(551	)
Net cash used in operating activities		(3,696	)		(818	)		(292	)
Cash flows from investing activities
Decrease (increase) in securities purchased under agreement to resell, maturing within 30 days, net		285			1,601			(4,062	)
Investments in subsidiaries		—			(38,000	)		(108,000	)
Net cash provided by (used in) investment activities		285			(36,399	)		(112,062	)
Cash flows from financing activities
Issuance of common stock, net of related expense		—			47,127			82,553
Stock based employment plans		123			180			174
Dividend reinvestment plan		—			20			31
Dividends paid on Series A preferred stock		(6,875	)		—			(389	)
Dividends paid on common stock		—			—			(191	)
Net cash provided by (used in) financing activities		(6,752	)		47,327			82,178
Net change in cash		(10,163	)		10,110			(30,176	)
Cash at beginning of year		17,944			7,834			38,010
Cash at end of year	$	7,781		$	17,944		$	7,834
RECONCILIATION OF INCOME (LOSS) TO CASH USED IN OPERATING ACTIVITIES
Net income (loss)	$	6,667		$	(33,203	)	$	(146,686	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Equity in undistributed (income) loss of subsidiaries		(8,145	)		31,149			145,468
Other, net		(2,218	)		1,236			926
Net cash used in operating activities	$	(3,696	)	$	(818	)	$	(292	)

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 condition, or operating results or cash flows.

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.

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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 $106,209,000 in commitments to extend credit outstanding at December 31, 2011, $81,256,000 is secured by 1-4 family residential properties for individuals with approximately $18,798,000 at fixed interest rates ranging from 3.125 to 5.875%.

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, 2011 and 2010 amounted to $10,603,000 and $10,891,000 respectively.

	December 31
	2011		2010
	(In thousands)
Contract or Notional Amount
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	106,209	$	90,437
Standby letters of credit and financial guarantees written:
Secured		2,513		2,686
Unsecured		9		59

84

Note Q    Supplemental Disclosures for Consolidated Statements of Cash Flows

Reconciliation of Net Loss to Net Cash Provided by Operating Activities for the three years ended:

	Year Ended December 31
	2011			2010			2009
	(In thousands)
Net income (loss)	$	6,667		$	(33,203	)	$	(146,686	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Impairment of goodwill		—			—			49,813
Depreciation		2,830			3,097			3,483
Amortization of premiums and discounts on securities		2,555			623			(1,353	)
Other amortization and accretion		(35	)		282			1,175
Change in loans available for sale, net		5,724			5,893			(6,933	)
Provision for loan losses, net		1,974			31,680			124,767
Deferred tax benefit		(10	)		(53	)		(13,087	)
Gain on sale of securities		(1,220	)		(3,687	)		(5,399	)
Gain on sale of loans		(143	)		(113	)		(73	)
Loss on sale or write down of foreclosed assets		3,812			13,520			3,486
Loss (gain) on disposition of equipment		58			(31	)		841
Stock based employee benefit expense		587			493			580
Change in interest receivable		(561	)		1,123			1,370
Change in interest payable		(2,258	)		944			109
Change in prepaid expenses		2,748			3,822			(13,315	)
Change in accrued taxes		(145	)		21,424			4,858
Change in other assets		585			(1,954	)		548
Change in other liabilities		573			(1,201	)		(1,202	)
Net cash provided by operating activities	$	23,741		$	42,659		$	2,982
Supplemental disclosure of non cash investing activities
Fair value adjustment to securities	$	5,530		$	(279	)	$	(70	)
Transfers from loans to other real estate owned		35,500			22,114			29,256
Transfers from loans to loans available for sale		—			—			9,314
Transfers from other assets to other real estate owned		—			1,676			—
Transfer from bank premises and equipment to other real estate owned		—			377			—
Purchase of securities under trade date accounting		—			508			—
Transfer of loans to other assets		—			1,747			—
Transfer of other real estate owned to other assets		—			1,642			—
Matured securities recorded as a receivable		3,630			—			—

85

Note R    Fair Value

Fair Value Instruments Measured at Fair Value

In certain circumstances, fair value enables the 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. ASC 820 provides additional guidance for estimating fair value when the volume and level of activity for an asset or liability has significantly decreased. In addition, it includes guidance on identifying circumstances that indicate a transaction is not orderly. Under ASC 820, fair value measurements for items measured at fair value at December 31, 2011 and 2010 included:

	Fair Value		Quoted Prices in		Significant Other		Significant Other
	Measurements		Active Markets for		Observable		Unobservable
(Dollars in thousands)	December 31, 2011		Identical Assets*		Inputs**		Inputs***
Available for sale securities	$	648,362	$	1,724	$	646,638	$	—
Loans available for sale		6,795		—		6,795		—
Loans (2)		18,895		—		9,423		9,472
OREO (1)		20,946		—		2,509		18,437

	Fair Value		Quoted Prices in		Significant Other		Significant Other
	Measurements		Active Markets for		Observable		Unobservable
(Dollars in thousands)	December 30, 2010		Identical Assets*		Inputs**		Inputs***
Available for sale securities	$	435,140	$	4,212	$	430,928	$	—
Loans available for sale		12,519		—		12,519		—
Loans(2)		49,317		—		13,862		35,455
OREO(1)		25,697		—		1,971		23,726

    * Level 1 inputs

  ** Level 2 inputs

*** Level 3 inputs

(1) Fair value is measured on a nonrecurring basis in accordance with the provisions of ASC 360.

(2) See Note F. Nonrecurring fair value adjustments to loans identified as impaired reflect full or partial write-downs that are based on the loans observable market price or current appraised value of the collateral in accordance with ASC 310.

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 and OREO are based on appraisals which significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows, is classified as Level 3 inputs.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s monthly and/or quarter valuation process.

During 2011 there were no transfers between level 1 and level 2 assets carried at fair value.

For loans classified as level 3 the transfers in totaled $3.6 million consisting of loans that became impaired during 2011. Transfers out consisted of charge offs of $4.7 million, and foreclosures migrating to OREO and other reductions (including principal payments) totaling $25.0 million. No sales were recorded.

86

Charge-offs recognized upon loan foreclosures are generally offset by general or specific allocations of the allowance for loan losses and generally do not, and did not during the reported periods, significantly impact the Company’s provision for loan losses.

For OREO classified as level 3 during 2011 transfers out totaled $35.7 million consisting of valuation write-downs of $2.8 million and sales of $32.9 million and transfers in consisted of foreclosed loans totaling $30.4 million.

The carrying value amounts and fair values of the Company’s financial instruments at December 31 were as follows:

	At December 31
	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In thousands)
Financial Assets
Cash and cash equivalents	$	167,081	$	167,081	$	211,405	$	211,405
Securities		668,339		668,849		462,001		461,993
Loans, net		1,182,509		1,211,809		1,202,864		1,224,452
Loans held for sale		6,795		6,795		12,519		12,519
Financial Liabilities
Deposits		1,718,741		1,722,709		1,637,228		1,644,930
Borrowings		186,252		191,702		148,213		152,091
Subordinated debt		53,610		32,166		53,610		17,200

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, 2011 and 2010:

Cash and cash equivalents:    The carrying amount was used as a reasonable estimate of fair value.

Securities:    U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. In general, the Company does not purchase investment portfolio securities that are esoteric or that have a complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are U.S. Treasury obligations, federal agency bullet or mortgage pass-through securities, or general obligation or revenue based municipal bonds. Pricing for such instruments is fairly generic and is easily obtained. From time to time, the Company will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.

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 risks inherent in the loan. For residential

87

mortgage loans, fair value is estimated by discounting contractual cash flows adjusting for prepayment assumptions using discount rates based on secondary market sources. The estimated fair value is not an exit price fair value under ASC 820 when this valuation technique is used.

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 funding 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 estimated using discounted cash flow analysis and the Company’s current incremental borrowing rate for similar instruments.

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.

In 2011, 2010, and 2009, options and warrants to purchase 1,125,000, 1,136,000, and 1,147,000, shares , respectively, were antidilutive and accordingly were excluded in determining diluted earnings per share.

	Year Ended December 31
	Net Income					Per Share
	(Loss)			Shares		Amount
	(Dollars in thousands, except per share data)
2011
Basic Earnings Per Share
Income available to common shareholders	$	2,919			93,511,983	$	0.03
Diluted Earnings Per Share
Employee restricted stock (See Note J)					289,090
Income available to common shareholders plus assumed conversions	$	2,919			93,801,073	$	0.03
2010
Basic and Diluted Earnings Per Share
(Loss) available to common shareholders	($	36,951	)		76,561,692	($	0.48	)
2009
Basic and Diluted Earnings Per Share
(Loss) available to common shareholders	($	150,434	)		31,733,260	($	4.74	)

88

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 balances related to each component of other comprehensive income, net, is presented below.

	Pre-tax Amount			Income Tax (Expense) Benefit			After-tax Amount
	(In thousands)
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Accumulated other comprehensive income, net, December 31, 2009	$	3,270		$	(1,262	)	$	2,008
Net unrealized gain on securities		2,560			(988	)		1,572
Reclassification adjustment for realized gains and losses on securities		(2,845	)		1,098			(1,747	)
Accumulated other comprehensive income, net, December 31, 2010		2,985			(1,152	)		1,833
Net unrealized gain on securities		5,884			(2,272	)		3,612
Reclassification adjustment for realized gains and losses on securities		(354	)		137			(217	)
Accumulated other comprehensive income, net, December 31, 2011	$	8,515		$	(3,287	)	$	5,228

89

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 Insurance Services, Inc (inactive)	Florida
3.	South Branch Building, Inc	Florida
4.	TCoast Holdings, LLC	Florida
5.	BR West, LLC	Florida
6.	TC Stuart, LLC	Florida
7.	TC Property Venture, LLC	Florida
8.	SBCF Capital Trust I	Delaware
9.	SBCF Statutory Trust II	Connecticut
10.	SBCF Satutory Trust III	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 on Form S-8 (Nos. 33-22846, 33-25627, 333-161014, 333-49972, and 333-152931) and Form S-3 (Nos. 333-177872 and 333-156803) of Seacoast Banking Corporation of Florida and subsidiaries (the Company) of our reports dated March 14, 2012, with respect to the consolidated balance sheets of the Company as of December 31, 2011 and 2010, and the related consolidated statements of income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011, and the effectiveness of internal control over financial reporting as of December 31, 2011, which reports appear in the December 31, 2011 annual report on Form 10-K of the Company.

March 14, 2012

Miami, Florida

Certified Public Accounts

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/A 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: April 10, 2012

/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/A 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: April 10, 2012

/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/A of Seacoast Banking Corporation of Florida (“Company”) for the period ended December 31, 2011 (“Report”), I, Dennis S. Hudson, III , Chairman 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

Dennis S. Hudson, III

Chairman and Chief Executive Officer

Date: April 10, 2012

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/A of Seacoast Banking Corporation of Florida (“Company”) for the period ended December 31, 2011 (“Report”), I, William R. Hahl, Executive Vice President and 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:April 10, 2012

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-99.1

EXHIBIT 99.1

CERTIFICATION

PURSUANT TO 31 C.F.R. § 30.15

Seacoast Banking Corporation of Florida (UST #175)

I, Dennis S. Hudson, III, certify, based on my knowledge, that:

(i) The compensation committee of Seacoast Banking Corporation of Florida has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (“SEO”) compensation plans and employee compensation plans and the risks these plans pose to Seacoast Banking Corporation of Florida;

(ii) The compensation committee of Seacoast Banking Corporation of Florida has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Seacoast Banking Corporation of Florida and has identified any features of the employee compensation plans that pose risks to Seacoast Banking Corporation of Florida and has limited those features to ensure that Seacoast Banking Corporation of Florida is not unnecessarily exposed to risks;

(iii) The compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of Seacoast Banking Corporation of Florida to enhance the compensation of an employee, and has limited any such features;

(iv) The compensation committee of Seacoast Banking Corporation of Florida will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) The compensation committee of Seacoast Banking Corporation of Florida will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in:

(a) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Seacoast Banking Corporation of Florida;

(b) Employee compensation plans that unnecessarily expose Seacoast Banking Corporation of Florida to risks; and

(c) Employee compensation plans that could encourage the manipulation of reported earnings of Seacoast Banking Corporation of Florida to enhance the compensation of an employee;

(vi) Seacoast Banking Corporation of Florida has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) Seacoast Banking Corporation of Florida has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(viii) Seacoast Banking Corporation of Florida has limited bonus payments to its applicable employees in accordance with Section 111 of EESA and the regulations and guidance established thereunder during any part of the most recently completed fiscal year that was a TARP period;

(ix) Seacoast Banking Corporation of Florida and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any

part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) Seacoast Banking Corporation of Florida will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;

(xi) Seacoast Banking Corporation of Florida will disclose the amount, nature, and justification for the offering, during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) Seacoast Banking Corporation of Florida will disclose whether Seacoast Banking Corporation of Florida, the board of directors of Seacoast Banking Corporation of Florida, or the compensation committee of Seacoast Banking Corporation of Florida has engaged, during any part of the most recently completed fiscal year that was a TARP period, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) Seacoast Banking Corporation of Florida has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(xiv) Seacoast Banking Corporation of Florida has substantially complied with all other requirements related to employee compensation that are provided in the agreement between Seacoast Banking Corporation of Florida and Treasury, including any amendments;

(xv) Seacoast Banking Corporation of Florida has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and the most highly compensated employee identified; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both.

Date: April 10, 2012

/s/ Dennis S. Hudson, III

Dennis S. Hudson, III

Chairman and Chief Executive Officer

(Principal Executive Officer)

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EX-99.2

EXHIBIT 99.2

CERTIFICATION

PURSUANT TO 31 C.F.R. § 30.15

Seacoast Banking Corporation of Florida (UST #175)

I, William R. Hahl, certify, based on my knowledge, that:

(i) The compensation committee of Seacoast Banking Corporation of Florida has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period, senior executive officer (“SEO”) compensation plans and employee compensation plans and the risks these plans pose to Seacoast Banking Corporation of Florida;

(ii) The compensation committee of Seacoast Banking Corporation of Florida has identified and limited during any part of the most recently completed fiscal year that was a TARP period any features of the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Seacoast Banking Corporation of Florida and has identified any features of the employee compensation plans that pose risks to Seacoast Banking Corporation of Florida and has limited those features to ensure that Seacoast Banking Corporation of Florida is not unnecessarily exposed to risks;

(iii) The compensation committee has reviewed, at least every six months during any part of the most recently completed fiscal year that was a TARP period, the terms of each employee compensation plan and identified any features of the plan that could encourage the manipulation of reported earnings of Seacoast Banking Corporation of Florida to enhance the compensation of an employee, and has limited any such features;

(iv) The compensation committee of Seacoast Banking Corporation of Florida will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

(v) The compensation committee of Seacoast Banking Corporation of Florida will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in:

(a) SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of Seacoast Banking Corporation of Florida;

(b) Employee compensation plans that unnecessarily expose Seacoast Banking Corporation of Florida to risks; and

(c) Employee compensation plans that could encourage the manipulation of reported earnings of Seacoast Banking Corporation of Florida to enhance the compensation of an employee;

(vi) Seacoast Banking Corporation of Florida has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under section 111 of EESA (bonus payments), be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

(vii) Seacoast Banking Corporation of Florida has prohibited any golden parachute payment, as defined in the regulations and guidance established under section 111 of EESA, to a SEO or any of the next five most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(viii) Seacoast Banking Corporation of Florida has limited bonus payments to its applicable employees in accordance with Section 111 of EESA and the regulations and guidance established thereunder during any part of the most recently completed fiscal year that was a TARP period;

(ix) Seacoast Banking Corporation of Florida and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under section 111 of EESA, during any

part of the most recently completed fiscal year that was a TARP period; and any expenses that, pursuant to this policy, required approval of the board of directors, a committee of the board of directors, an SEO, or an executive officer with a similar level of responsibility were properly approved;

(x) Seacoast Banking Corporation of Florida will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during any part of the most recently completed fiscal year that was a TARP period;

(xi) Seacoast Banking Corporation of Florida will disclose the amount, nature, and justification for the offering, during any part of the most recently completed fiscal year that was a TARP period, of any perquisites, as defined in the regulations and guidance established under section 111 of EESA, whose total value exceeds $25,000 for any employee who is subject to the bonus payment limitations identified in paragraph (viii);

(xii) Seacoast Banking Corporation of Florida will disclose whether Seacoast Banking Corporation of Florida, the board of directors of Seacoast Banking Corporation of Florida, or the compensation committee of Seacoast Banking Corporation of Florida has engaged, during any part of the most recently completed fiscal year that was a TARP period, a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

(xiii) Seacoast Banking Corporation of Florida has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during any part of the most recently completed fiscal year that was a TARP period;

(xiv) Seacoast Banking Corporation of Florida has substantially complied with all other requirements related to employee compensation that are provided in the agreement between Seacoast Banking Corporation of Florida and Treasury, including any amendments;

(xv) Seacoast Banking Corporation of Florida has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and the most highly compensated employee identified; and

(xvi) I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both.

Date:April 10, 2012
	/s/ William R. Hahl
	William R. Hahl
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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