Seacoast Banking Corporation of Florida (NASDAQ: SBCF) reported earnings for the 2nd quarter ended June 30, 2008 after the bell on Thursday, July 24, 2008. The results were, well, horrible.
Estimates called for SBCF to earn at least $0.06 per share. Instead, the community bank that serves the South Florida market posted a loss of $21.3M or $1.12 per share. SBCF also indicated it would be declaring a “de minimis” dividend, and although the amount is not indicated, it might as well be zero. Furthermore, the healthy 7%+ yield many SBCF holders have been expecting at these levels has been negated for the foreseeable future.
I am unsure how the stock price will react to this event, but as I have discussed in previous reports, this is exactly the news that we have needed from SBCF. As a holder of SBCF and a believer that the dividend would have been maintained during this economic swing, I am somewhat disappointed by the dividend cut, but I am pleased to see SBCF do so to preserve capital. Also, in an environment mired b y significant write downs, SBCF finally came to the table with a realistic write down number of substance.
In a perfect world, it would have been great for SBCF to maintain the dividend and not have any bad loans or write offs, but we do not live in a perfect world. I am unsure why these events did not transpire sooner. By delaying these events, SBCF was starting to send the message that they were immune to the impacts that are plaguing nearly every financial institution in the country. Certainly, there may be some banks that get out totally unscathed, but with the biggest, most sophisticated institutions in the country begging for mercy, the street was in no way going to bet on SBCF being the knight in shining armor.
In the light of a tremendous quarterly loss, a vanquished dividend, and a challenging economic environment, it would seem that you should run from SBCF as fast as possible. Financials are certainly out of favor and it will likely be many months, if not longer, before we see a strengthening real estate market, particularly in South Florida. I would certainly exercise caution, but this news is exactly what the investment community needed to hear from SBCF.
SBCF has stepped up to the plate, faced their big write down, and eliminated the dividend to preserve capital. SBCF also commented it plans to return to profitability in the next quarter and will strongly consider a stock repurchase program at these levels to enhance shareholder value. Furthermore, it seems that although there are tough times ahead, the worst may be behind us or already priced in to the current stock price. I do not expect SBCF to quickly return its dividend and certainly not at the $0.16 per share per quarter levels, but I do expect the SBCF financials to stabilize.
Most importantly, SBCF has avoided the need to raise additional, dilutive capital. Certainly, SBCF has a registration on the sidelines, but unless the environment deteriorates far more than almost anyone is expecting, SBCF is well capitalized and likely will not have to take this path.
Overall, SBCF finally paid the price of partaking of the hot housing market of the earliest 21st century. It is time to go back to the drawing board – and that is often an indicator that the dawn is right around the corner.
A full report on SBCF will be available in the August 31, 2008 issue of Earnings Perspective.
Disclosure: Author holds a long position in SBCF