Q4 2024 Seacoast Banking Corporation of Florida Earnings Call

January 28, 2025

Speaker Change: Welcome to Seacoast Backing Corporation's fourth quarter and full year 2024 earnings conference call.

My name is Jericho and I'll be your operator.

Speaker Change: All lines have been placed on view to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1, followed by the number 1 on your telephone keypad.

Speaker Change: If you would like to withdraw your question, press star 1 again.

Speaker Change: Before we begin, I have been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements.

Speaker Change: Seacoast will be discussing issues that constitute forward-looking statements within the meaning of the Securities and Exchange Act and its comments today are intended to be covered within the meaning of the Act.

Speaker Change: Please note that this conference is being recorded. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seagulls Bank. Mr. Shaffer, you may begin.

Speaker Change: Okay, thank you Jericho and good morning everyone. As we go through our presentation we'll refer to the fourth quarter earnings slide deck available at www.seacoastbanking.com

Speaker Change: I'm here today with Tracey Dexter, our Chief Financial Officer, Michael Young, our Treasurer and Director of Investor Relations, and James Stallings, our Chief Credit Officer.

Speaker Change: SECO's team delivered an outstanding quarter. This period showcased profitability enhancements we've been focusing on, while also demonstrating the organic growth and margin expansion we anticipated would materialize by late 2024.

Speaker Change: The adjusted return on tangible assets improved to 1.24%, up from 0.98%, and the adjusted efficiency ratio declined from 59.8% to 56.1%.

Speaker Change: Asset quality metrics also improved showing a significant decline in classified and criticized assets.

Speaker Change: This quarter marked a strong finish to 2024, and we're entering 2025 from a position of significant strength. Our investments and talent across our footprint have fully taken effect, driving substantial onboarding and new relationships.

Speaker Change: And while we started the quarter slowly due to the two hurricanes, the team finished the quarter strong, setting a record for loan production with originations of $900 million during the period.

Speaker Change: Loan volume was well diversified, encompassing both C&I and commercial real estate.

Speaker Change: We also ended the year on a high note on wealth management and treasury management fees.

Speaker Change: Overcoming lost revenue from service charges and interchange due to the hurricanes early in the quarter.

Speaker Change: And as we enter 2025, we're starting the year with strong momentum with all our business lines positioned for success.

Speaker Change: With an improved yield curve and a stronger macroeconomic outlook, we're excited about the year ahead.

Speaker Change: We continue to see numerous opportunities to recruit growth-focused talent and teams. And we anticipate we'll see opportunities to deploy our strong capital position.

Speaker Change: And with that, I'll turn the call over to Tracey to walk through our financial results.

Tracey Dexter: Thank you, Chuck. Good morning, everyone. Directing your attention to fourth quarter results, beginning with slide four.

Tracey Dexter: Net interest income of $115.8 million is up 9% from the prior quarter.

Tracey Dexter: The cost of deposits declined 26 basis points to 2.08 percent.

Tracey Dexter: Net interest margin expanded 22 basis points to 3.39% And excluding accretion on acquired loans, net interest margin expanded 15 basis points to 3.05%

Tracey Dexter: Return on Tangible Common Equity increased to 10.9% on a gap basis and 12.74% on an adjusted basis.

Tracey Dexter: Tangible book value per share of $16.12 represents a 7% year-over-year increase with a decline in the fourth quarter due to the impact of changes in rates on other comprehensive income in the securities portfolio.

Tracey Dexter: Our capital position continues to be very strong. Seacoast Tier 1 capital ratio is 14.8% and the ratio of tangible common equity to tangible assets is 9.6%.

Turning to slide 5.

Tracey Dexter: Net interest income expanded by $9.1 million during the quarter, driven primarily by lower deposit costs.

Tracey Dexter: The net interest margin expanded 22 basis points to 3.39% and excluding accretion on acquired loans expanded 15 basis points to 3.05%.

Tracey Dexter: In the securities portfolio, yields increased two basis points to 3.77%, benefiting from recent purchases.

Tracey Dexter: Looking ahead to the first quarter, we expect continued expansion of net interest income and expect the core net interest margin to expand another approximately seven to ten basis points, driven by continued loan and deposit growth and lower deposit costs.

Tracey Dexter: For the full year 2025, assuming no change in the yield curve and one Fed rate cut, we expect to exit the year with core net interest margin around 3.35%.

Tracey Dexter: An additional rate cut could add another approximately five basis points.

Moving to slide 6.

Tracey Dexter: Non-interest income, excluding securities activity, increased $2 million in the fourth quarter to $25.5 million.

Tracey Dexter: Other income was higher by $2.5 million, including higher SBIC income and gains on loan sales.

Tracey Dexter: Looking ahead to the first quarter, we continue to focus on growing non-interest income and we expect non-interest income in a range from $20 million to $22 million.

Tracey Dexter: That's a modest step down from the fourth quarter to the first, given the favorable items like loan sales and FBIC income that positively impacted the fourth quarter.

Moving to slide 7.

Tracey Dexter: Our wealth division reached a number of internal milestones in 2024, including record new assets under management.

Tracey Dexter: Total AUM has increased 20% year-over-year to 2.1 billion and has increased at a compound annual growth rate of 24% in the last five years.

Tracey Dexter: On to slide 8, non-interest expense in the fourth quarter was consistent with the guidance we provided, coming in at $85.6 million on a gap basis.

Tracey Dexter: We continue to remain focused on profitability and performance, and expect continued disciplined management of overhead and the efficiency ratio.

Moving to slide 9.

Tracey Dexter: Loan outstandings increased at an annualized rate of 3.7%. Record production of over $900 million in the fourth quarter had funding levels of approximately 50%.

Tracey Dexter: Loan sales included the disposition of two larger commercial real estate relationships, each generating a gain on sale and reducing classified loan balances.

Loan yields were down excluding accretion by 10 basis points.

Tracey Dexter: Approximately 27% of the loan portfolio is comprised of variable rate loans which saw rate changes in line with movements in market rates. In addition, the cleanup of the consumer fintech portfolios resulted in adjustments to interest income of approximately 500,000.

Tracey Dexter: Accretion continues to be variable and was elevated this quarter in line with elevated payoffs.

Turning to slide 10.

Tracey Dexter: Exposure is broadly distributed and we continue to be vigilant in maintaining our disciplined, conservative credit culture.

Tracey Dexter: Non-owner occupied commercial real estate loans represent 35% of all loans and are distributed across industries and collateral types.

Tracey Dexter: As we have for many years, we consistently manage our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance.

Tracey Dexter: These measures are significantly below the peer group at 36% and 224% of consolidated risk-based capital, respectively.

Tracey Dexter: We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk.

Moving on to credit topics on slide 11.

Tracey Dexter: The allowance for credit losses totaled $138.1 million, or 1.34% of total loans, compared to 1.38% in the prior quarter.

Tracey Dexter: The allowance for credit losses, combined with the $128 million remaining unrecognized discount on acquired loans, totals $266 million, or 2.6% of total loans, that's available to cover potential losses, providing substantial loss absorption capacity.

Tracey Dexter: Moving to slide 12, looking at quarterly trends and credit metrics.

Tracey Dexter: Contributing to charge-offs in the fourth quarter, we entered into arrangements to sell approximately $20 million in consumer fintech loans and as a result charge down these loans by $3 million.

Tracey Dexter: Non-performing loans represented 0.9% of total loans, while an increase from the prior quarter, additions to non-accrual loans in the fourth quarter included a small number of credits for which no loss is expected, as collateral values are well in excess of the loan balances.

Moving to slide 13 and the investment securities portfolio.

Tracey Dexter: The average yield on securities has benefited from purchases in recent quarters at higher yields, including a restructure executed early in the fourth quarter, and the portfolio yield increased during the fourth quarter to 3.77%.

Tracey Dexter: We took advantage of favorable market conditions and repositioned a portion of the available-for-sale portfolio in October.

Tracey Dexter: We sold securities with proceeds of approximately $113 million with an average book yield of 2.8%, resulting in a pre-tax loss of approximately $8 million, impacting fourth quarter results.

Tracey Dexter: The proceeds were reinvested in agency mortgage-backed securities with a book yield of approximately 5.4% for an estimated earnback of less than three years.

On to slide 14 in the Deposit Portfolio.

Tracey Dexter: We remain keenly focused on organic growth and are very encouraged about the continued activity and focus across the franchise on deposit gathering.

Tracey Dexter: On slide 15, Seacoast continues to benefit from a diverse deposit base. Customer transaction accounts represent 50% of total deposits, which continues to highlight our long-standing relationship-focused approach.

Tracey Dexter: Our customers are highly engaged and have a long history with us, and low average balances reflect the granular relationship nature of our franchise.

Tracey Dexter: And finally, on slide 16, our capital position continues to be very strong, and we're committed to maintaining our fortress balance sheet.

Tracey Dexter: Tangible book value per share increased 7% year-over-year to $16.12 and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.6%.

Tracey Dexter: Our risk-based and peer-to-peer capital ratios are among the highest in the industry.

Tracey Dexter: In summary, we remain steadfastly committed to driving shareholder value, and our consistent, disciplined expense management positions us well as we continue to build Florida's leading regional bank.

I'll now turn the call back over to Chuck.

Chuck Shaffer: Thank You Tracy and operator I think we're ready for Q&A

Speaker Change: We will now begin the question and answer session. So if you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw the question, simply press star 1 again.

Speaker Change: And our first question comes from Woodley from KBW. Please go ahead.

Hey, good morning, guys.

Good morning, Wood. Morning.

Speaker Change: Wanted to start on the loan growth front. I mean it was a pretty strong quarter you know given the elevated payoff and some of the other headwinds there. It looks like the pipeline is a little bit down entering the first quarter but how are you thinking about loan growth in the year ahead?

Speaker Change: I would look at the pipeline as typical just seasonality typically we clear the pipeline at the end of the year the first quarter is Usually a little slower start and it builds beyond that already here in the first

Speaker Change: 30 days of the year. The pipeline's built back up some, so I'm really confident about where we're headed there. Built a great team. They continue to onboard a lot of relationships, so we're headed the right direction.

Speaker Change: Got it. And then any color on the yield on new production and how that compared relative to the third quarter? Are you seeing any impact on on loan rates from increased competition?

Speaker Change: Hey Woody, this is Michael. Yeah, we saw in the fourth quarter we were at about a little above 7% on add-on rates. It was a little lower. I think that was just a pull through from kind of the lower rate environment we saw at the end of the third quarter. But now at the long end of the curve is coming higher as we enter 2025. That's really supportive of our loan add-on rates.

Speaker Change: That said, there is competition, certainly, and we remain mindful of that, and we'll compete on price for good relationships, but not on structure. So we'll keep an eye on that, but we still feel, I think, directionally very good about the yield curve and its shape headed into 2025, and that being supportive of our loan yields and higher loan yields throughout the year.

Speaker Change: Got it. And then lastly, in the opening comments you mentioned that there could be some opportunities to deploy some excess capital later in the year. Would that be primarily through M&A and just any update on your overall thoughts on M&A?

Speaker Change: Yeah, I would say, you know, post-election conversations have accelerated, I think, generally across Florida and across the industry. So, you know, we think we may have opportunities to put capital to work as the year moves on. You know, we did look at a few things prior quarter that really we didn't like the pricing on, so we passed on them. But we are active in the M&A market.

Speaker Change: All right, thanks for taking my questions. Congrats on the good quarter. Thanks, Luke.

Speaker Change: Our next question comes from the line of Russell Gunther from Stevens. Please go ahead.

Hey, good morning guys. Hey Russell. Morning Russell.

Russell Gunther: I wanted to follow up on the loan sales in the quarter. I think you mentioned a couple of portfolios. So just for a point of clarification on my end, is it the 20 million of consumer FinTech that that will be sold or is there anything beyond that in 4Q results?

Russell Gunther: Right, the fourth quarter included about $20 million also in sales of a couple of non-performing commercial real estate relationships.

Russell Gunther: So with the purchase discount that remained on those loans, those ended up with a gain on sale during the fourth quarter.

Russell Gunther: So $20 million in commercial real estate and then the $20 million in consumer fintech nearly fully resolves the kind of runoff portfolios in consumer fintech that we acquired a couple years ago.

Russell Gunther: Hey, Russell. This is Michael. I'll take that one. We had a higher payoff quarter in the fourth quarter. We had kind of signaled that, I think, on the third quarter call, which is why we're more at a mid-single-digit growth rate, also with the impact of hurricanes in the fourth quarter. We don't have the same lumpiness in terms of maturities as we move into 2025, so it should be better in terms of our ability to generate net loan growth. So we had a very strong production

Thanks, Michael. I appreciate it. And then just ...

Also circling back to the

Russell Gunther: Deployment of excess capital. I'm just curious if you guys are thinking about or how you guys are thinking about continuing to kind of nip and tuck at the securities portfolio with restructuring throughout 2025 and if so whether or not that's embedded in the in the guide provided earlier.

Speaker Change: Hey Russell, this is Michael again. You know, we evaluated, as we've said, you know, frequently when we've seen opportunities where the earn back got inside of three years. We felt like that was an attractive use of capital. We aren't there right now, but we'll continue to evaluate that as we move forward and look for opportunities. But, you know, I think we will see how the environment unfolds and where the rate environment is.

Speaker Change: to see whether or not that's going to be beneficial or the right use of capital versus our other capital priorities, and then whether that's embedded into our guide. It's not currently at this time.

Russell Gunther: Great. Thanks, Michael. And then, guys, just one last one for me. Commentary around expenses were in line with expectations for this quarter. Apologies if I missed it, but just how are you guys thinking about the expense run rate over the course of 2025?

Russell Gunther: Yeah, I think, you know, we've been really successful in executing on our expense discipline initiatives across the organization. Looking ahead, as you know, there's some seasonality to expenses that will impact the first quarter. You'll always see things like higher FICA and 401k kind of lifting expenses in the first quarter.

Russell Gunther: Through the year, we'll continue to look for opportunities to invest in growth, so I'd expect some variability throughout the year, but we'll continue to manage our disciplined approach.

Speaker Change: Very good. Thanks, Tracey. Hey, thanks, guys, for taking all of my questions.

Thank you.

Speaker Change: Our next question comes from David Feaster from Raymond James. Please go ahead.

Hey, good morning, everybody.

David?

Speaker Change: I wanted to circle back to the growth side and the guidance for accelerating growth over the course of the year. You know, look, the origination activity is extremely encouraging. What you guys have been able to do is great. I'm curious, how much of the expectations for the acceleration in growth is...

Speaker Change: is driven by expectations for improving demand versus you gaining share in the continued hires that you've got and just high level. Just curious, what's the pulse of the market from your perspective and what are you expecting the growth to be driven by?

Speaker Change: Well, as you know, David, we made a lot of investments in talent over the last 12 to 24 months and importantly

Speaker Change: In 2020, late 22, 23, we held back on lending during that period, one, because the rates were lower, and two, due to just the environment. That, I think, served us very well because it gave us a very attractive liquidity position today that we can put to work, so as we continue to onboard teams.

Speaker Change: You know, they view that as an opportunity to come on and join us and we have the balance sheet to grow as we move forward. So primarily in the guide, what we expect is growth driven by the investments we've made in talent across the franchise.

Speaker Change: Demand remains reasonably strong. It tends to be growing. I think the 10-year part of the curve will be kind of the wild card as to whether or not demand remains strong. If the 10-year holds in where it is, I think you'll continue to see.

Speaker Change: Demand in the marketplace competition is definitely out there again Some of the super regional national banks have kind of moved back in the commercial real estate market where they're out of it for a while But you know, I feel confident in our ability to hit our objectives. We got a great team. They're onboarding great relationships and

Pipeline's already growing through the first part of this year

Yeah, just curious what you guys are looking at there.

Speaker Change: Yeah, we continue to see a lot of opportunity to hire. It's almost too much opportunity because we're having to balance back to the profitability and so we're balancing profitability to hiring and growth and trying to find that right mix.

Speaker Change: But yeah, there's still a lot of opportunities to put and grow our team across the state.

Speaker Change: And so we'll manage the profitability. I think our primary focus right now is driving our profitability metrics in the right direction. And then, you know, we'll balance that back against growth. But I think we got the right mix now with a with a great team and, you know, the right prospects for growth. And so we'll continue to.

Speaker Change: Balanced it all out, but I feel good about our head.

Speaker Change: and the ability to drive positive operating leverage this year. Just as some of these, you know, investments come to fruition, and it sounds like maybe, you know, just depending on the revenue growth and loan growth outlook, some of that might flow to the expense side and we reinvest it.

Speaker Change: Hey, David. This is Michael. I'll take that one. On operating leverage, we definitely will show positive operating leverage this year with the margin and NII dynamics. That's going to be a nice tailwind. You know, I think I would kind of anchor us back to what we talked about in the past. We used to be sort of a 50 to 55% efficiency ratio company when we were driving sort of an M&A growth model. Now that we're shifting increasingly towards organic growth, it comes with a little higher efficiency ratio.

Speaker Change: as well as with just being a mid-sized bank. So that 55 to 60% range is something we plan to manage within, and we'll have normal sort of inflationary pressures on the expense base year-to-year, and then we'll just see kind of what the talent pipeline looks like and the opportunities ahead.

Speaker Change: Maybe if I could just follow up, David. If you think back, David, to kind of how we managed through back in 22, 23, you know, we held back on growth during that period. We bolstered liquidity given the market dynamics.

Speaker Change: We allowed capital to grow and that's all kind of set us up to this position where we are where we were conservative during That period built the team migrated to a mid-sized bank

Speaker Change: built the compliance function and made the right investments there. And so we're now at the, you know, the sort of right moment, if you will, of we've made the investments, it's time to capitalize on those investments. And if the market.

That's terrific. Thanks everybody.

Thanks, Dave.

Speaker Change: Our next question comes from Christopher Marinak from Janie Montgomery Scott. Please go ahead.

Bye.

Christopher Marinak: Good morning. Tracey, I want to go back to the margin and sort of cost of funds discussion. If the Fed doesn't cut rates further, is there a...

Christopher Marinak: you know possibility that deposit costs just kind of go flat and maybe even tick up as treasuries go back up. I'm just curious kind of what what is possible there. I know the first quarter first half guide that you gave us and just kind of think thinking beyond that.

Christopher Marinak: Yeah, our current forecast includes one Fed rate cut in the middle of the year where we're seeing the benefit now of, you know, being able to address the deposit costs and be proactive about some of that. That will continue a little bit, but I think you'll see some meaningful stabilization in deposit costs. Michael, you want to expand on that?

Michael: Yeah, maybe Chris just to start the year, you know, we're down from even the December level So we're starting from a very strong position there You know some stability I think initially in deposit costs and then if we don't see a rate cut mid-year Maybe a slight drift upwards from there, but very slight and then on the flip side, right? There's two sides to that equation

Michael: On the loan yield side, we still feel very positive about the back book repricing trend that should outpace the deposit costs and lead to that margin expansion as we move throughout the year.

Michael: Great, thanks for the additional color and then just back on the on the criticized, classified improvement that we saw this quarter. Chuck, do you see any any changes with either loans maturing or just reappraisal process that would just cause those criticized to go back up? It's not as much a loss question as it is just sort of direction on that ratio.

Michael: you know fairly strong compared to or actually really strong compared to the industry in general and so you know I think it's it's stable at this point Chris I don't know there of any reason why classified and criticized would increase from here.

Great. Thanks for taking all of our questions this morning.

Thank you.

For more information visit our website at www.fema.gov

Speaker Change: Our next question comes from David Bishop from Hope Day Group. Please go ahead.

Yeah, good morning folks.

Speaker Change: Hey quick question Chuck in terms of maybe visibility in terms of the deposit pipeline here looks like this quarter maybe lead to cash and

Speaker Change: You know, short-term liquidity to fund the loan growth, how should we think about funding of loan growth in 2025?

Speaker Change: I'll make a few high-level comments and let Michael Jump in here, but given our low loan deposit ratio you know we're not out competing in the higher 8 CD market or not out competing for the

Speaker Change: Our cost transactional deposits were focused solely on you know relationships based sort of relationships and so

Speaker Change: It's more focused on DDA and bringing on operating accounts and that's that's you know takes takes longer But it's the right stuff to do. It's building franchise value and so

Speaker Change: We're going to stay out of the higher-rate stuff, but Michael, you want to talk a little bit about that? Yeah, one other, you know, just kind of nuanced thing here, but you know given the low loan-to-deposit ratio We can grow deposits at a slower pace on a percentage basis than loans and still fully fund the loan book So yeah

Speaker Change: I think we feel pretty good about our ability to grow deposits this year with some of the headwinds from 23 and 24, sort of remediating in the progress we made on deposit costs in the fourth quarter. We're starting from a good spot on a cost basis so we can be competitive as we move throughout 2025.

Speaker Change: That said, if we were less successful on the deposit side, we do have over $350 million in securities book cash flow that would come in throughout the year that could be used to help fund loan growth without having to sell any securities. So just giving you a couple of moving pieces, but we feel good about deposit growth in 2025.

Okay, perfect and then maybe a

Russell Gunther: A question for Tracey, I assume some of the uptake in the purchase accounting accretion income this quarter was a function of some of the payoffs you mentioned. Just curious as we think as maybe, you know, as a percent of the margin or so, a contribution of margin.

Russell Gunther: This year was like 31 basis points on average per quarter, you know, maybe do you see that sort of stat? I assume it steps down and maybe should we think about an average of the low, you know, low 20 basis point range contribution margin, how should we think about that during the year?

Russell Gunther: Yeah, David, I think that's right to think about it stepping down over time. The accretion remains quite variable and difficult to predict. The fourth quarter, as you said, was a bit higher, kind of aligned with elevated payoffs. I would think maybe

Russell Gunther: Looking ahead, we'd see something more aligned with the levels in the third quarter or before, which was kind of on the lower end. Recent quarterly results have ranged from maybe $9 to $10 million a quarter in accretion, so working off that number, maybe the lower end of that range is good.

Got it. Appreciate the call.

No further questions.

Speaker Change: At this time, Mr. Shaffer, I turn the call back over to you.

Chuck Shaffer: Okay thank you and appreciate everybody joining the call and appreciate the Seacoast team. You guys did an awesome job. It was a great quarter and look forward to talking to you next quarter. I think that'll conclude our call. Thank you sir.

Speaker Change: This concludes today's call. Thank you for joining. You may now disconnect.

Thank you for watching

[inaudible] David Feaster, Russell Gunther, Charles Shaffer, David Feaster, Russell Gunther, Charles Shaffer,

[music]

The

Speaker Change: A film by Charles Shaffer A film by Charles Shaffer A film by Charles Shaffer A film by Charles Shaffer A film by Charles Shaffer A film by Charles Shaffer

The

And Ron Howard

The End

Speaker Change: Welcome to Seacoast Backing Corporation's fourth quarter and full year 2024 earnings conference call.

My name is Jericho and I'll be your Operator.

Speaker Change: If you would like to withdraw your question, press star 1 again.

Speaker Change: Before we begin, I have been asked to direct your attention to the statement at the end of the company's press release regarding forward-looking statements.

Speaker Change: Please note that this conference is being recorded. I will now turn the call over to Chuck Shaffer, Chairman and CEO of Seagulls Bank. Mr. Shaffer, you may begin.

Okay, thank you Jericho and good morning everyone

Speaker Change: As we go through our presentation, we'll refer to the fourth quarter earnings slide deck available at Seacoastbanking.com.

Speaker Change: I'm here today with Tracy Dexter, our Chief Financial Officer, Michael Young, our Treasurer and Director of Investor Relations, and James Stallings, our Chief Credit Officer.

Speaker Change: SECO's team delivered an outstanding quarter. This period showcased profitability enhancements we've been focusing on while also demonstrating the organic growth and margin expansion we anticipated would materialize by late 2024.

Speaker Change: Our strong, granular core deposit franchise allowed us to reduce the cost of deposits by 26 basis points in the fourth quarter, while the team grew loans by 4% on an annualized basis.

Speaker Change: Asset quality metrics also improved showing a significant decline in classified and criticized assets.

Speaker Change: This quarter marked a strong finish to 2024 and we're entering 2025 from a position of significant strength. Our investments and talent across our footprint has fully taken effect driving substantial onboarding and new relationships.

Speaker Change: Loan volume was well diversified encompassing both C&I and commercial real estate.

Speaker Change: We also ended the year on a high note in wealth management and treasury management fees.

Speaker Change: Overcoming lost revenue from service charges and interchange due to the hurricanes early in the quarter

Speaker Change: And as we enter 2025, we're starting the year with strong momentum, with all our business lines positioned for success.

Speaker Change: With an improved yield curve and a stronger macroeconomic outlook, we're excited about the year ahead.

Speaker Change: We continue to see numerous opportunities to recruit growth-focused talent and teams, and we anticipate we'll see opportunities to deploy our strong capital position.

Tracey Dexter: With that, I'll turn the call over to Tracey to walk through our financial results.

Tracey Dexter: Thank you, Chuck. Good morning, everyone. Directing your attention to fourth quarter results, beginning with slide four.

Tracey Dexter: Net interest income of $115.8 million is up 9% from the prior quarter.

Tracey Dexter: The cost of deposits declined 26 basis points to 2.08 percent.

Tracey Dexter: Net interest margin expanded 22 basis points to 3.39% And excluding accretion on acquired loans, net interest margin expanded 15 basis points to 3.05%

Tracey Dexter: Return on Tangible Assets increased to 1.06% on a gap basis and 1.24% on an adjusted basis.

Tracey Dexter: Return on Tangible Common Equity increased to 10.9% on a gap basis and 12.74% on an adjusted basis.

Tracey Dexter: Tangible book value per share of $16.12 represents a 7% year over year increase with a decline in the fourth quarter due to the impact of changes in rates on other comprehensive income in the securities portfolio.

Tracey Dexter: Our capital position continues to be very strong. Seacoast Tier 1 capital ratio is 14.8% and the ratio of tangible common equity to tangible assets is 9.6%.

Turning to slide 5.

Tracey Dexter: Net interest income expanded by $9.1 million during the quarter, driven primarily by lower deposit costs.

Tracey Dexter: The net interest margin expanded 22 basis points to 3.39% and excluding accretion on acquired loans expanded 15 basis points to 3.05%.

Tracey Dexter: In the securities portfolio, yields increased two basis points to 3.77% benefiting from recent purchases.

Tracey Dexter: Loan yields were down one basis point to 5.93%, excluding accretion, loan yields declined by 10 basis points to 5.48%.

Tracey Dexter: The impact of the lower fed funds rate on our variable rate portfolio, along with interest adjustments resulting from the planned sale of consumer fintech loans, accounted for the decrease.

Tracey Dexter: Looking ahead to the first quarter, we expect continued expansion of net interest income and expect the core net interest margin to expand another approximately seven to ten basis points driven by continued loan and deposit growth and lower deposit costs.

Tracey Dexter: For the full year 2025, assuming no change in the yield curve and one fed rate cut, we expect to exit the year with core net interest margin around 3.35%.

Tracey Dexter: An additional rate cut could add another approximately five basis points.

Moving to slide 6

Tracey Dexter: Non-interest income, excluding securities activity, increased $2 million in the fourth quarter to $25.5 million.

Tracey Dexter: Service charges declined largely due to fee waivers early in the fourth quarter post-hurricane. Beyond that, our investments in talent and significant market expansion across the state have resulted in continued growth in Treasury management services to commercial customers.

Tracey Dexter: Other income was higher by $2.5 million, including higher SBIC income and gains on loan sales.

Tracey Dexter: Looking ahead to the first quarter, we continue to focus on growing non-interest income, and we expect non-interest income in a range from $20 million to $22 million.

Tracey Dexter: That's a modest step down from the fourth quarter to the first, given the favorable items like loan fails and FBIC income that positively impacted the fourth quarter.

Moving to slide seven.

Tracey Dexter: Our Wealth Division reached a number of internal milestones in 2024, including record new assets under management.

Tracey Dexter: We continue to remain focused on profitability and performance and expect continued disciplined management of overhead and the efficiency ratio.

Moving to slide nine.

Tracey Dexter: Loan outstandings increased at an annualized rate of 3.7%. Record production of over $900 million in the fourth quarter had funding levels of approximately 50%.

Tracey Dexter: Loan sales included the disposition of two larger commercial real estate relationships, each generating a gain on sale and reducing classified loan balances.

Tracey Dexter: Also sold were consumer fintech loans acquired in 2022, which had contributed about eight basis points to charge-offs in 2024.

Loan yields were down excluding accretion by 10 basis points.

Tracey Dexter: Approximately 27% of the loan portfolio is comprised of variable rate loans, which saw rate changes in line with movements in market rates. In addition, the cleanup of the consumer fintech portfolios resulted in adjustments to interest income of approximately 500,000.

Tracey Dexter: Accretion continues to be variable and was elevated this quarter in line with elevated payoffs.

Tracey Dexter: Looking forward, we expect core loan yields in the first quarter to stabilize, the pipeline remains strong, and we expect low to mid-single-digit loan growth in the coming quarter, moving toward high single-digit growth by the end of the year.

Turning to slide 10.

Tracey Dexter: Exposure is broadly distributed and we continue to be vigilant in maintaining our disciplined, conservative credit culture.

Tracey Dexter: Non-owner occupied commercial real estate loans represent 35% of all loans and are distributed across industries and collateral types.

Tracey Dexter: As we have for many years, we consistently manage our portfolio to keep construction and land development loans and commercial real estate loans well below regulatory guidance.

Tracey Dexter: These measures are significantly below the peer group at 36% and 224% of consolidated risk-based capital, respectively.

Tracey Dexter: We've managed our loan portfolio with diverse distribution across categories and retaining granularity to manage risk.

Moving on to credit topics on slide 11.

Tracey Dexter: The allowance for credit losses totaled $138.1 million, or 1.34% of total loans, compared to 1.38% in the prior quarter.

Tracey Dexter: Non-performing loans represented 0.9% of total loans while an increase from the prior quarter additions to non-accrual loans in the fourth quarter included a small number of credits for which no loss is expected as collateral values are well in excess of the loan balances.

Tracey Dexter: Benefiting from the sale of two commercial real estate loan relationships, the ratio of criticized and classified loans to total loans decreased to 2.17%.

Moving to slide 13 and the investment securities portfolio.

Tracey Dexter: We took advantage of favorable market conditions and repositioned a portion of the available-for-sale portfolio in October.

Tracey Dexter: The proceeds were reinvested in agency mortgage-backed securities with a book yield of approximately 5.4% for an estimated earnback of less than three years.

On to slide 14 in the deposit portfolio.

Tracey Dexter: Total deposits were $12.2 billion, flat from the prior quarter. The cost of deposits declined 26 basis points to 2.08%.

Tracey Dexter: We remain keenly focused on organic growth and are very encouraged about the continued activity and focus across the franchise on deposit gathering.

Tracey Dexter: Our customers are highly engaged and have a long history with us and low average balances reflect the granular relationship nature of our franchise.

Tracey Dexter: Tangible book value per share increased 7% year-over-year to $16.12 and the ratio of tangible common equity to tangible assets remains exceptionally strong at 9.6 percent.

Tracey Dexter: Our risk-based and peer-to-peer capital ratios are among the highest in the industry.

I'll now turn the call back over to Chuck.

Speaker Change: Thank You Tracy and operator I think we're ready for Q&A

Speaker Change: And our first question comes from Woodley from KVW. Please go ahead.

Hey, good morning, guys.

Morning, Wood. Morning.

Speaker Change: Yeah, and I think Tracy provided her guide as low to mid single digits sort of early in the year into moving to high single digits late in the year. I think that's the kind of the way to think about it. I would look at the pipeline as typical just seasonality. Typically we clear the pipeline at the end of the year. The first quarter is usually a little slower start and it builds beyond that already here in the first

Speaker Change: 30 days of the year pipelines built back up some so I'm really confident about where we're headed there built a great team that Continued on board a lot of relationships. So we're headed the right direction would

Speaker Change: That said, there is competition certainly and we remain mindful of that and we're you know we'll compete on price for good relationships but not on structure so we'll keep an eye on that but we still feel you know I think directionally very good about the yield curve and its shape headed into 2025 and that being supportive of our loan yields and higher loan yields throughout the year.

Speaker Change: Yeah, I would say, you know, post-election conversations have accelerated, I think, generally across Florida and across the industry. So, you know, we think we may have opportunities to put capital to work as the year moves on. You know, we did look at a few things in the prior quarter that really we didn't like the pricing on, so we passed on them. But we are active in the M&A market.

and we will be opportunistic if something comes along.

Speaker Change: All right, thanks for taking my questions. Congrats on the good quarter. Thanks, Luke.

Speaker Change: Our next question comes from the line of Russell Gunther from Stevens. Please go ahead.

Hey, good morning guys. Hey Russell. Morning Russell.

Russell Gunther: Right. The fourth quarter included about $20 million also in sales of a couple of non-performing commercial real estate relationships.

Russell Gunther: So with the purchase discount that remained on those loans, those ended up with a gain on sale during the fourth quarter.

Speaker Change: Okay, thank you Tracey, that's helpful. And then in terms of, Chuck you touched on it a bit, in terms of the acceleration expected and loan growth throughout the course of the year. I'm just curious, embedded in that, how are you guys thinking about the pace of payoffs and the headwind that may or may not present for you guys?

Speaker Change: by the payoffs. We don't have those same headwinds really as we move forward into 2025. But we do still have maturities of that lower rate fixed-rate portfolio, they're burning off about $600 million there in the high fours that will be set now with a higher yield curve into a much higher rate environment.

Thanks, Michael. I appreciate it. And then just ...

Also circling back to the

Speaker Change: Deployment of Excess Capital. I'm just curious if you guys are thinking about or how you guys are thinking about continuing to kind of nip and tuck at the securities portfolio with restructuring throughout 2025 and if so whether or not that's embedded in the in the guide provided earlier.

Michael: Hey Russell, this is Michael again. You know, we evaluated, as we've said, you know, frequently when we've seen opportunities where the earn back got inside of three years, we felt like that was an attractive use of capital. We aren't there right now, but we'll continue to evaluate that as we move forward and look for opportunities. But, you know, I think we will see how the environment unfolds and where the rate environment is.

Speaker Change: to see whether or not that's going to be beneficial, or the right use of capital versus our other capital priorities, and then whether that's embedded into our guide. It's not currently at this time.

Speaker Change: Great. Thanks, Michael. I mean, guys, just one last one for me. Commentary around expenses were in line with expectations for this quarter. Apologies if I missed it, but just how are you guys thinking about the expense run rate over the course of 2025?

Speaker Change: Yeah, I think, you know, we've been really successful in executing on our expense discipline initiatives across the organization. Looking ahead, as you know, there's some seasonality to expenses that will impact the first quarter. You'll always see things like higher FICA and 401k kind of lifting expenses in the first quarter.

Speaker Change: Through the year, we'll continue to look for opportunities to invest in growth, so I'd expect some variability throughout the year, but we'll continue to manage our disciplined approach.

Speaker Change: Very good, thanks Tracey. Hey, thanks guys for taking all of my questions.

Thank you.

For more information visit www.FEMA.gov

Speaker Change: Our next question comes from David Feaster from Raymond James. Please go ahead.

Hey, good morning, everybody.

David?

Speaker Change: I wanted to circle back to the growth side and the guidance for accelerating growth over the course of the year. The origination activity is extremely encouraging, what you guys have been able to do is great. I'm curious, how much of the expectations for the acceleration in growth is...

Speaker Change: is driven by you know expectations for improving demand versus you gaining share and the continued hires that that you've got and just you know high level just curious what's the pulse of the market from your perspective and what are you expecting the growth to be driven by?

Speaker Change: Well, as you know, David, we made a lot of investments in talent over the last 12 to 24 months and, importantly,

Speaker Change: You know, they view that as an opportunity to come on and join us and we have the balance sheet to grow as we move forward. So primarily in the guide and what we expect is growth driven by the investments we've made in talent across the franchise.

Speaker Change: Demand remains reasonably strong. It seems to be growing. I think the 10-year part of the curve will be kind of the wild card as to whether or not demand remains strong. If the 10-year holds in where it is, I think you'll continue to see.

Speaker Change: Demand in the marketplace competition is definitely out there again Some of the super regional national banks have kind of moved back in the commercial real estate market where they were out of it for a While, but you know, I feel confident in our ability to hit our objectives. We got a great team. They're onboarding great relationships and

Speaker Change: Pipeline's already growing through the first part of this year.

Speaker Change: Yeah, yeah, just curious what you guys are looking at there

Speaker Change: But yeah, there's still a lot of opportunities to put and grow our team across the state.

Speaker Change: So we'll manage the profitability. I think our primary focus right now is driving our profitability metrics in the right direction and then we'll balance that back against growth. But I think we got the right mix now with a great team and the right prospects for growth and so we'll continue to

Speaker Change: Balance it all out, but I feel good about where we're headed.

Speaker Change: And maybe along those same lines, I mean, the stage is set for some pretty material, you know, revenue growth. You know, it sounds like expense growth, you know, it's there's there's some investment opportunities on the horizon. How do you think about the profitability profile of the bank?

Speaker Change: and the ability to drive positive operating leverage this year. Just as some of these, you know, investments come to fruition and sounds like maybe, you know, just depending on the revenue growth and loan growth outlook, some of that might flow to the expense side and we reinvest it.

Speaker Change: Hey David, this is Michael, I'll take that one. On operating leverage we definitely will show positive operating leverage this year with the margin and an II dynamics that's going to be a nice tailwind. You know I think I would kind of anchor us back to what we talked about in the past. We used to be sort of a 50 to 55 percent efficiency ratio company when we were driving sort of an M&A growth model. Now that we're shifting increasingly towards organic growth it comes with a little higher efficiency ratio.

Speaker Change: as well as just with being a mid-sized bank so that 55 to 60 percent range is something we plan to manage within and you know we'll have normal sort of inflationary pressures on the expense base year to year and then we'll just see you know kind of what the talent pipeline looks like in the opportunities ahead.

Speaker Change: Maybe if I could just follow up, David, if you think back, David, kind of how we managed through back in 22, 23, you know, we held back on growth during that period, we bolstered liquidity given the market dynamics.

Speaker Change: We allowed capital to grow and that's all kind of set us up to this position where we are where we were conservative during That period built the team migrated to a mid-sized bank

That's terrific. Thanks everybody.

Thanks Dave.

Speaker Change: Our next question comes from Christopher Marinek from Janey, Montgomery, Scotland. Please, go ahead.

Christopher Marinek: Good morning. Tracey, I want to go back to the margin and sort of cost of funds discussion. If the Fed doesn't cut rates further, is there a...

Christopher Marinek: you know, possibility that deposit costs just kind of go flat and maybe even tick up if treasuries go back up. I'm just curious kind of what is possible there. I know the first quarter, first half guide that you gave us and just kind of thinking beyond that.

Christopher Marinek: Yeah, our current forecast includes one Fed rate cut in the middle of the year where we're seeing the benefit now of you know being able to address the deposit costs and Be proactive about some of that that'll continue a little bit, but I think you'll see some meaningful Stabilization in deposit costs Michael you want to expand on that?

Speaker Change: Yeah, maybe Chris just to start the year, you know, we're down from even the December level So we're starting from a very strong position there You know some stability I think initially in deposit costs and then if we don't see a rate cut mid-year Maybe a slight drift upwards from there, but very slight and then on the flip side, right? There's two sides to that equation

Speaker Change: On the low-yield side, we still feel very positive about the back-book repricing trend that should outpace the deposit costs and lead to that margin expansion as we move throughout the year.

For more information visit www.FEMA.gov

Russell Gunther: Great, thanks for the additional color and then just back on the on the criticized, classified improvement that we saw this quarter. Chuck, do you see any any changes with either loans maturing or just reappraisal process that would just cause those criticized to go back up? It's not as much a loss question as it is just sort of direction of that ratio.

Russell Gunther: I think I characterize we feel really good about our asset quality position. I think we've managed the bank conservatively for a number of years now and our classified and criticized ratios are

Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES

Great. Thanks for taking all of our questions this morning.

Thank you. Bye.

Speaker Change: Our next question comes from David Bishak from Hopday Group. Please, go ahead.

Yeah, good morning folks.

Speaker Change: Hey quick question Chuck in terms of maybe visibility in terms of the deposit pipeline here looks like this quarter maybe lead to cash and

Speaker Change: You know short-term liquidity to fund the loan growth. How should we think about you know funding of loan growth in 25?

Speaker Change: I'll make a few high-level comments and let Michael jump in here, but given our low loan deposit ratio you know, we're not out competing in the high-rate CD market or not out competing for the

Speaker Change: Higher-cost transactional deposits were focused solely on, you know relationships based sort of relationships. And so

Speaker Change: It's more focused on DDA and bringing on operating accounts and that's that's you know takes takes longer But it's the right stuff to do. It's building franchise value and so

Speaker Change: This year was like 31 basis points on average per quarter, you know, maybe do you see that sort of stat? I assume it steps down and maybe should we think about an average of the low, you know, low 20 basis point range contribution margin, how should we think about that during the year?

Speaker Change: Looking ahead, we'd see something more aligned with the levels in the third quarter or before, which was kind of on the lower end. Recent quarterly results have ranged from maybe nine to ten million a quarter in accretion, so working off that number, maybe the lower end of that range is a good estimate for going forward, but again, really difficult to predict.

Got it. Appreciate the color.

No further questions.

Chuck Shaffer: At this time, Mr. Shaffer, I turn the call back over to you.

The

Q4 2024 Seacoast Banking Corporation of Florida Earnings Call

Request a DemoDemo

SBCF

Seacoast Banking

Earnings