FIRST QUARTER 2009

The following discussion and analysis is designed to provide a better understanding of the significant factors related to the Company's results of operations and financial condition. Such discussion and analysis should be read in conjunction with the Company's Condensed Consolidated Financial Statements and the notes attached thereto included in this report.

NEW OFFICES / CLOSURES

The Company's banking subsidiary has consolidated, improved and opened a number of branch offices during 2009 and 2008. Most recently, a new branch office in the same shopping plaza as our existing Wedgewood branch in Martin County but with better ingress and egress on a corner of U.S. Highway One replaced the existing office and opened January 20, 2009.

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

EARNINGS SUMMARY

Net loss available to common shareholders for the first quarter of 2009 totaled $(5,697,000) or $(0.30) per average common diluted share, compared to $(22,711,000) or $(1.19) per average common diluted share in the fourth quarter of 2008 and net income of $1,763,000 or $0.09 per average common diluted share in the first quarter of 2008.

As forecasted at the end of 2008, the net interest margin improved by 12 basis points during the first quarter of 2009 (from fourth quarter 2008) as the Company continued to benefit from lower rates paid for interest bearing liabilities due to the Federal Reserve Bank's historic effort to rejuvenate the economy and limit the effect of the recession by reducing rates overall by 400 basis points since September 2007. The average cost of interest bearing liabilities was 47 basis points lower for the first quarter of 2009, compared to fourth quarter 2008. Results also indicate continued success in retail deposit growth initiatives, signs of stability for residential real estate in our markets with transaction activity improving during the first quarter of 2009, and the successful implementation of reductions in overhead, as predicted.
Noninterest expenses were $1.3 million lower than the fourth quarter of 2008, with legal and professional fees lower by $0.7 million. Provisioning for loan losses was substantially lower than the fourth quarter of 2008, with the $11.6 million in provisioning for the first quarter of 2009 improving the Company's allowance for loan losses to loans outstanding ratio to 1.99 percent but also reducing overall earnings for the first quarter of 2009.

CRITICAL ACCOUNTING ESTIMATES

Management, after consultation with the Company's Audit Committee, believes the most critical accounting estimates and assumptions that may affect the Company's financial status and that involve the most difficult, subjective and complex assessments are:

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the allowance and the provision for loan losses;

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the fair value of securities;

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realization of deferred tax assets;

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goodwill impairment; and

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contingent liabilities.

The following is a brief discussion of the critical accounting policies intended to facilitate a reader's understanding of the judgments, estimates and assumptions underlying these accounting policies and the possible or likely events or uncertainties known to us that could have a material effect on our reported financial information.

Allowance and Provision for Loan Losses

The information contained on pages 20-23 and 29-36 related to the "Provision for Loan Losses", "Loan Portfolio", "Allowance for Loan Losses" and "Nonperforming Assets" is intended to describe the known trends, events and uncertainties which could materially impact the Company's accounting estimates related to the Company's allowance for loan losses.

Fair Value of Securities Classified as Trading and Available for Sale

The use of fair value accounting for financial instruments enables the Company to better align the financial results of those items with their economic value.

At March 31, 2009, no trading securities were outstanding and available for sale securities totaled $349,181,000. The fair value of the available for sale portfolio at March 31, 2009 was more than historical amortized cost, producing net unrealized gains of $7,955,000 that have been included in other comprehensive income as a component of shareholders' equity. The Company made no change to the valuation techniques used to determine the fair values during the first quarter of 2009. The fair value of each security available for sale or trading was obtained from independent pricing sources utilized by many financial institutions. 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 security holdings is investment grade and higher and are traded in highly liquid markets. Obligations of U.S. Treasury and U.S. Government agencies total $320 million, or 91.2 percent of the total portfolio. The remainder of the portfolio consists of super senior AAA private label securities originated in 2005, 2004, and 2003 and obligations of state and political subdivisions. The AAA private label securities are reviewed quarterly for any indication of other than temporary impairment. The collateral underlying these investments is comprised of whole loan 30- and 15-year fixed rate and 10/1 adjustable rate mortgages; the mortgages comprising the collateral for these securities have had minimal foreclosures and no losses. Changes in the fair values, as a result of deteriorating economic conditions and credit spread changes, should only be temporary. Further, management believes that the Company's other sources of liquidity, as well as the cash flow from principal and interest payments from the securities portfolio, reduces the risk that losses would be realized as a result of needed liquidity from the securities portfolio.

Realization of Deferred Tax Assets

Our wholly-owned subsidiary, Seacoast National Bank, had a state deferred tax asset ("DTA") of $5.5 million at December 31, 2008, reflecting the benefit of $101.3 million in net operating loss ("NOL") carry-forwards, which will expire between 2027 and 2028. This deferred state tax asset resulted from a large provision for loan losses in 2008 related to Seacoast National Bank's residential construction and land development loan portfolio. Early recognition of and aggressive responses to unprecedented economic conditions resulted in dramatically higher loan loss provisions and negative earnings for Seacoast National Bank during 2008. The realistic and timely recognition of market conditions allowed for realignment of resources early in 2008 and the achievement of rapid reductions in residential construction and land development loan exposures which at March 31, 2009 continue to decline, totaling 7.2 percent of total loans compared to 7.8 percent at December 31, 2008 and 20.2 percent at their peak during 2007. Management believes that loan loss provisions will likely be much lower in the future over the 20-year carry forward period for state NOLs. Seacoast National Bank has been through other similar economic cycles in the past where provisioning for loan losses has been elevated followed by periods of lower risk and little to no loan loss provisioning. It is management's opinion that Seacoast National Bank's future taxable income will allow the recovery of the NOL, and the utilization of its deferred tax assets.

As a result of the losses incurred in 2008, the Company was in a three-year cumulative pretax loss position at December 31, 2008. A cumulative loss position is considered significant negative evidence in assessing the realizability of a DTA. The use of the Company's forecast of future taxable income was not considered positive evidence which could be used to offset the negative evidence at this time given the uncertain economic conditions.
Therefore, a valuation allowance of $5.5 million was recorded related to the Company's state deferred tax asset at December 31, 2008. There was no change in the valuation allowance recorded at March 31, 2009.

Goodwill Impairment

The Company's goodwill is tested periodically for impairment. The amount of goodwill at March 31, 2009 totaled $49.8 million, and results from the acquisitions of three separate community banks whose operations have been fully integrated into one operating subsidiary bank of the Company.

The assessment as to the continued value for goodwill involves judgments, assumptions and estimates regarding the future. At March 31, 2009, the Company's closing price per share in the open market approximated 34.2 percent of book value per share, which was considered as a possible indication of impairment. The Company enlisted the assistance of an independent third party to assist in determining the Company's fair value in December, 2008. In performing the analysis, management considered the make-up of assets and liabilities (loan and deposit composition), scarcity value, capital ratios, market share, credit quality, control premiums, the type of financial institution, its overall size, the various markets in which the institution conducts business, as well as, profitability. Based upon the results of this analysis, using discounted cash flow as well as change in control valuation methods, management concluded that goodwill had suffered no impairment. Bank stocks traded in a relatively wide range during 2008 and during the first quarter 2009. The Company's stock price has been more volatile, but management believes the decline or rise in its stock price is reflective of general market factors affecting the banking industry as a whole and is unrelated to goodwill impairment. Management updated its analysis and reaffirmed at March 31, 2009 that goodwill had suffered no impairment. Management will continue to periodically test goodwill for impairment, and during this period of economic stress and uncertainty, this could result in a future determination that goodwill is impaired.

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

Contingent Liabilities

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

During the first quarter of 2008, the Company reversed $130,000 of a $275,000 charge it had recorded as of year-end 2007 for its portion of Visa® credit card litigation and settlement costs. Visa®'s initial public offering was successfully completed during the first quarter of 2008, eliminating the need for this accrual.

Management is not aware of any other probable losses.

RESULTS OF OPERATIONS


NET INTEREST INCOME


Net interest income (on a fully taxable equivalent basis) for the first quarter
of 2009 totaled $18,241,000, increasing from 2008's fourth quarter by $706,000
or 4.0 percent, but lower than first quarter 2008's result by $2,321,000 or 11.3
percent.  The following table details net interest income and margin results (on
a tax equivalent basis) for the past five quarters:


(Dollars in thousands)   Net Interest Income     Net Interest Margin
First quarter 2008                   $20,562                    3.74 %
Second quarter 2008                   20,234                    3.69
Third quarter 2008                    19,186                    3.57
Fourth quarter 2008                   17,535                    3.32
First quarter 2009                    18,241                    3.44

Net interest margin on a tax equivalent basis improved 12 basis points to 3.44 percent for first quarter 2009 compared to fourth quarter 2008, but was lower by 30 basis points year over year. While the Company has operated in a more challenging lending environment with unrecognized interest on loans placed on nonaccrual the primary contributor to weaker net interest income and net interest margin results quarter to quarter during 2008, first quarter 2009's net interest income and net interest margin were improved.

The earning asset mix changed year over year. For 2009, average loans (the highest yielding component of earning assets) as a percentage of average earning assets totaled 77.7 percent, compared to 85.8 percent a year ago. Average securities as a percent of average earning assets increased from 13.0 percent a year ago to 16.7 during first quarter 2009 and federal funds sold and other investments increased to 5.6 percent from 1.2 percent over the same period in 2008. 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 57.6 percent of total loans at March 31, 2009 (compared to 62.1 percent a year ago at March 31, 2008), reflecting efforts to reduce the Company's exposure to commercial construction and land development loans on residential properties (which declined by $165.2 million year over year at March 31, 2009). Lower yielding residential loan balances with individuals (including home equity loans and lines, and construction loans) represented 38.0 percent of total loans at March 31, 2009 (versus 33.4 percent a year ago) (see "Loan Portfolio").

The yield on earning assets for first quarter 2009 was 5.16 percent, 124 basis points lower than for first quarter 2008, a reflection of the declining interest rate environment as well as higher nonperforming loans. The following table details the yield on earning assets (on a tax equivalent basis) for the past five quarters:

1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 2009 2008 2008 2008 2008 Yield 5.16% 5.45% 5.78% 5.89% 6.40%

The yield on loans declined 99 basis points to 5.63 percent over the last twelve months. The yield on investment securities was lower as well, decreasing 64 basis points year over year to 4.51 percent, due primarily to purchases at lower yields diluting the overall portfolio yield year over year. Federal funds sold and other investments yielded 0.49 percent for the first quarter 2009, lower when compared to 4.54 percent a year ago for the same period. The dramatic reduction in interest rates during 2008, with the Federal Reserve lowering the target federal funds rate to 0 to 25 basis points and the Treasury yield curve shifting lower, will continue to limit opportunities to invest at higher interest rates prospectively unless demand improves. As nonaccrual loans totaling $109.4 million or 6.7 percent of total loans at March 31, 2009 (versus $64.7 million or 3.4 percent of total loans a year ago) are resolved, reinvested funds will favorably impact the overall yield on earning assets.

Average earning assets for the first quarter of 2009 increased $50.6 million or 2.4 percent compared to the fourth quarter of 2008. While average loan balances decreased $67.5 million or 3.9 percent to $1,670.4 million, average federal funds sold and other investments increased $66.5 million to $121.6 million and average investment securities were $51.6 million or 16.8 percent higher, totaling $358.9 million. The Company expects further earning asset mix changes to occur during the remainder of 2009.

Commercial and commercial real estate loan production for the first quarter of 2009 totaled $12 million. In comparison, commercial and commercial real estate loan production for 2008 totaled $117 million, with $8 million in the fourth quarter, $33 million in the third quarter, $19 million in the second quarter and $57 million for the first quarter a year ago. Economic conditions in the markets the Company serves are expected to continue to be more challenging in 2009 and the Company expects negative loan growth. At March 31, 2009 the Company's total commercial and commercial real estate loan pipeline was $76 million, versus $299 million at March 31, 2008.

Closed residential loan production for the first quarter of 2009 totaled $38 million, of which $20 million was sold servicing released. In comparison, $23 million in residential loans were produced in the fourth quarter of 2008, with $10 million sold servicing released, and $30 million was produced in the first quarter of 2008, with $14 million sold servicing released. Applications for residential mortgages totaled $92 million during the first quarter of 2009, an increase of $54 million from the fourth quarter of 2008 indicative of a resurgence in existing home sales and refinancing activity in the Company's markets. Demand for new home construction is expected to remain soft in 2009.

During the first quarter of 2009, maturities (principally pay-downs) of securities totaled $10.5 million and security portfolio purchases totaled $36.0 million. In comparison, during the first quarter of 2008, maturities (principally pay-downs) of securities totaled $18.1 million and security purchases totaled $9.8 million. Purchases were conducted principally to reinvest funds from loan principal repaid and for pledging requirements.

The cost of average interest-bearing liabilities in the first quarter of 2009 decreased 47 basis points to 2.05 percent from fourth quarter 2008 and was 121 basis points lower than for first quarter 2008, reflecting the lower interest rate environment. The following table details the cost of average interest bearing liabilities for the past five quarters:

1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 2009 2008 2008 2008 2008 Rate 2.05% 2.52% 2.64% 2.68% 3.26%

The Company's retail core deposit focus has produced strong growth in core deposit customer relationships when compared to the prior year's and last quarter's results, and resulted in increased balances which offset planned certificate of deposit runoff during the first quarter of 2009. Total new households were up 5.2 percent during the quarter compared to the fourth quarter of 2008. The improved deposit mix and lower rates paid on interest bearing deposits during the first quarter of 2009 reduced the overall cost of interest bearing deposits to 2.11 percent, 39 basis points lower than in the fourth quarter of 2008 and 107 basis points lower than the first quarter a year ago.
Still a significant component favorably affecting the Company's net interest margin, the average balance for lower cost interest bearing deposits (NOW, savings and money market) increased from 52.8 percent in the fourth quarter of 2008 to 53.3 percent of average total interest bearing deposits during the first quarter of 2009, but was lower than the average of 62.2 percent a year ago. The average rate for lower cost interest bearing deposits for the first quarter of 2009 was 1.10 percent, down by 43 basis points from the fourth quarter of 2008 and 126 basis points from the first quarter of 2008. Certificate of deposit ("CD") rates paid were also lower compared to the fourth and first quarter of 2008, lower by 34 basis points and 128 basis points, respectively, and averaged 3.25 percent for the first quarter of 2009. Average CDs (the highest cost component of interest bearing deposits) decreased to 46.7 percent of interest bearing deposits from 47.2 percent for fourth quarter 2008, but remained a higher percentage than a year ago.

Average deposits totaled $1,810.4 million during the first quarter of 2009, and were $29.7 million lower compared to fourth quarter 2008, due primarily to the shifting of public fund customer deposit balances in late December to sweep repurchase agreements. Total average deposits plus sweep repurchase agreements totaled $1,964.5 million during the first quarter of 2009, up $39.4 million or 2.0 percent from fourth quarter 2008. Average total deposits declined $102.9 million or 5.4 percent compared to the same period in 2008, principally as a result of deposit declines in the Company's central Florida region (resulting from slower economic growth affecting the second half of 2008). The average aggregated balance for NOW, savings and money market balances decreased $171.2 million or 17.3 percent to $818.0 million for first quarter 2009 compared to first quarter 2008, noninterest bearing deposits decreased $49.0 million or 15.2 percent to $274.4 million, and average CDs increased by $117.3 million or 19.5 percent to $718.0 million. As a result of the low interest rate environment, customers have deposited more funds into CDs, while maintaining lower average balances in savings and other liquid deposit products that pay no interest or a lower interest rate. In addition, Seacoast National Bank (the Company's banking subsidiary) joined the Certificate of Deposit Registry program ("CDARs") on July 1, 2008, whereby our customers can have CDs safely insured beyond the FDIC deposit insurance limits. This benefited our deposit retention efforts during the recent financial market disruption and provided a new product offering to homeowners' associations concerned with FDIC insurance coverage.

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

Average federal funds purchased have been nominal with none outstanding during 2009, compared to an average of $12.6 million for the first quarter of 2008 and $4.0 million for all of 2008. Average short-term borrowings have been principally comprised of sweep repurchase agreements with customers of the Company's bank subsidiary, which increased $69.1 million or 81.2 percent from the fourth quarter of 2008 and $63.2 million or 69.5 percent from the first quarter of 2008. Most of the increase in average sweep repurchase agreement balances was due to efforts to reduce FDIC insurance costs by migrating public fund deposits late in the fourth quarter of 2008. Other borrowings are comprised of subordinated debt of $53.6 million and advances from the Federal Home Loan Bank ("FHLB") of $65.2 million that have not changed since year-end 2007.

Company management believes its market expansion, branding efforts and retail deposit growth strategies are producing new relationships and core deposits.
Reductions in nonperforming assets are expected to favorably affect future net interest margin, and the success over the last 12 months with retail deposit growth is also having a positive impact.

PROVISION FOR LOAN LOSSES

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

The provision for loan losses is the result of a detailed analysis estimating an appropriate and adequate allowance for loan losses. The analysis includes the evaluation of impaired loans as prescribed under SFAS No. 114 "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," as well as, an analysis of homogeneous loan pools not individually evaluated as prescribed under SFAS No. 5, "Accounting for Contingencies." For the first quarter ended March 31, 2009, the provision for loan losses was $11.7 million, higher than 2008's first quarter provisioning of $5.5 million but lower than the $30.7 million provision for fourth quarter 2008.

The provision for loan losses was $3.1 million more than net charge-offs of $8.5 million or 2.07 percent of average total loans during the first quarter of 2009. In comparison, net charge-offs for 2008 were $4.4 million in the first quarter and $81.1 million for the entire year. Net charge-offs during 2008 and 2009 were primarily due to higher net charge-offs in the residential construction and land development loan portfolio, a reflection of the . . .